Kestra Medical (KMTS) Q3 2026 Earnings Transcript

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Date

Tuesday, March 17, 2026 at 4:30 p.m. ET

Call participants

• Chief Executive Officer — Brian Webster
• Chief Financial Officer — Vaseem Mahboob

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Takeaways

• Revenue -- $24.6 million, an increase of 63% year over year, driven by a 58% rise in Assure system prescriptions.
• Gross margin -- 52.6%, up nine percentage points year over year and 200 basis points sequentially, representing the ninth straight quarter of sequential expansion.
• Prescriptions -- Over 5,400 Assure system prescriptions written, reflecting both new and existing account penetration.
• Conversion rate -- Approximately 46%, up from an adjusted 43% year over year, attributed to improvements in fill rate, BIN rate, and collections performance.
• Operating expenses -- GAAP total of $47.7 million, including $1.5 million in nonrecurring costs related to professional fees and recent equity activity.
• Net loss -- GAAP net loss of $34.2 million, compared to $21.8 million in the prior-year period; adjusted EBITDA loss was $21.2 million versus $16.3 million.
• Cash position -- $291 million in cash and cash equivalents as of January 31, inclusive of net proceeds from a December equity offering.
• In-network billing mix -- Increased to the low 80% range from 70% at IPO, supporting higher revenue per fit and efficiency across revenue cycle metrics.
• Sales organization expansion -- Ended 2025 with about 100 active territories, with a target of 130 by fiscal year-end in April, focusing on high-volume geographies with robust payer coverage.
• Florida Medicaid access -- Achieved managed Medicaid provider status and signed agreements with two of the four largest plans in Florida, further expanding potential patient population and impacting gross margins positively.
• Federal Supply Schedule addition -- Newly added to the U.S. Department of Veterans Affairs’ Federal Supply Schedule, granting access to market products to VA hospitals nationwide.
• Medicare reimbursement update -- Monthly reimbursement rate for WCDs increased 2% to $3,589 effective January 1.
• FDA algorithm approval -- New Assure system algorithm approved, expected to lower both false alarm and inappropriate shock rates, further differentiating the product.
• Strategic collaboration with BioBeat -- Entered into an exclusive co-development agreement, including a $5 million equity investment in MyoV, to integrate ambulatory blood pressure monitoring technology into the platform.
• Updated revenue guidance -- Fiscal year 2026 revenue guidance raised to $93 million, representing 55% anticipated growth, compared to prior guidance of $91 million and initial guidance of $85 million.
• ACE PAS study impact -- Results highlighted low false alarm rates, strong compliance, and 100% arrhythmia conversion, reinforcing clinician engagement and market perception of elevated patient risk post-hospitalization.
• Market growth estimation -- Company estimates WCD market grew in the low- to mid-teens percentage during calendar year 2025 and remains in early stages of broader expansion.

Summary

Kestra Medical Technologies (NASDAQ:KMTS) reported significant operational milestones, including payer access in Florida and the U.S. Department of Veterans Affairs as well as the release of a new FDA-cleared Assure system algorithm. Management attributed the rise in prescriptions to both share gains within existing accounts and early-stage market expansion fueled by an enlarged sales organization. Strategic integration of BioBeat’s blood pressure monitoring is expected to enhance product differentiation and clinical value, supporting increased physician adoption of WCD therapy.

• Vaseem Mahboob said, "we have now expanded our gross margin sequentially nine quarters in a row," underscoring consistent operating leverage.
• Brian Webster cited "our math points to about 70% to 75% of that coming from installed base or current market share shift as we win market share, and about 25% of it coming from actual new prescribers," highlighting competitive strength and ongoing market expansion.
• The inclusion on the Federal Supply Schedule is anticipated to enable direct engagement with VA hospitals across nearly every sales territory.
• Gross margin trajectory is expected to benefit further as cost improvement programs on disposables take full effect, per comments regarding inventory and new cost structures.
• Management confirmed that the new Assure system algorithm will be rolled out at HRS and stated it "will absolutely put us clearly differentiated on both of those metrics," referring to false alarms and inappropriate shocks.
• Planned shelf registration following IPO anniversary is described as a corporate governance step, with no capital needs currently identified.
• Capital expenditures reached $9 million for the quarter, aligning with accelerated territory growth from 100 to 130 planned by year-end.

Industry glossary

• WCD (Wearable Cardioverter Defibrillator): A noninvasive external device that monitors a patient's heart rhythm and delivers therapy to terminate life-threatening arrhythmias outside the hospital setting.
• ACE PAS: The post-approval study of the Assure WCD, enrolling over 21,000 patients to assess real-world safety, compliance, and therapeutic outcomes.
• Revenue cycle management (RCM): The administrative and clinical process used to track patient care episodes from registration and scheduling to final payment.
• BIN rate: The ratio of written WCD prescriptions successfully processed through pharmacy benefit networks, reflecting payer access and administrative throughput.
• ABPM (Ambulatory Blood Pressure Monitoring): A patient-worn technology providing continuous noninvasive blood pressure data used for clinical decision making and hypertension management.

Full Conference Call Transcript

Brian Webster: Thanks, Neil. Good afternoon, and thank you for joining us on today's conference call. Happy Saint Patrick's Day to all of our friends in Ireland. We are an Irish-domiciled company, so we are happy to celebrate along with them. We are 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 would like to begin, though, by grounding us again in the KESTRA MEDICAL TECHNOLOGIES, LTD. mission: the lives we help protect each day and the patients, families, and clinicians we serve. The reality in cardiac care is that risk does not always resolve when a patient leaves the hospital.

For many patients, vulnerability persists, and care needs evolve. During periods when risk remains elevated, 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 about 20 days, the Assure system detected many episodes of SVT, which is a heart condition characterized by a rapid resting heart rate stemming from issues in the upper chambers of the heart. Automated KESTRA MEDICAL TECHNOLOGIES, LTD. CareStation alerts were generated for each episode, and the KESTRA MEDICAL TECHNOLOGIES, LTD. 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 arrhythmias persisted. During the Christmas holidays, the Assure system detected a severe ventricular arrhythmia and delivered a lifesaving shock. Immediately, the KESTRA MEDICAL TECHNOLOGIES, LTD. team coordinated with the emergency department, spoke directly with the on-call physician, and transmitted rhythm strips to facilitate informed clinical decision-making. After stabilization, this patient's situation required transfer to a higher-acuity hospital. During helicopter transport, the Assure system detected another life-threatening arrhythmia and delivered a second shock, protecting the patient at a critical moment while en route to advanced care.

Because early detection was matched with clinician engagement, and because protection traveled with them across every transition of care, this vulnerable patient survived a rapidly declining clinical episode. This story represents more than a single intervention and illustrates how the cardiac recovery system supports patients across the recovery journey. What differentiates KESTRA MEDICAL TECHNOLOGIES, LTD. is not just the therapy we deliver, but the system we surround it with: intelligent detection and protection, clinical insight, and human engagement working together. In 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.

Brian Webster: I would now like to turn to our recent financial performance. In the third quarter, we continued to reach more patients at risk of cardiac arrest, accepting over 5,400 prescriptions written for the Assure system. Revenue was $24,600,000, with growth of 63% compared to the prior-year period. Gross margin of 52.6% was up nine 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 MEDICAL TECHNOLOGIES, LTD. is on a path to 70% plus gross margins over the next few years.

With the strong revenue growth and margin expansion that KESTRA MEDICAL TECHNOLOGIES, LTD. 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 MEDICAL TECHNOLOGIES, LTD. and its stakeholders. Turning to the WCD market, we have previously noted that despite the overwhelming evidence that an external defibrillation shock is effective at terminating dangerous cardiac rhythms, WCD therapy remains underutilized. Six out of seven patients that are indicated for a 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 the WCD market grew in the low- to 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.

Brian Webster: On last quarter's earnings call, we discussed the results from ACE PAS, our FDA post-approval study, which was presented in November. As a reminder, ACE PAS was the largest real-world prescribed prospective WCD study to date, with over 21,000 patients enrolled and protected. The study's findings corroborated what 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 arrhythmias. ACE PAS continues to be a major topic of conversation with clinicians, articulating 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.

Brian Webster: We have also continued to learn from the body of data generated from the ACE PAS study, and we are 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 MEDICAL TECHNOLOGIES, LTD.'s technology in the wearable defibrillator market.

Brian Webster: In mid-January, we announced another innovation, a strategic collaboration with BioBeat Technologies to expand diagnostic insight for patients prescribed the Assure WCD. The agreement is anchored by an exclusive license and co-development arrangement and included a $5,000,000 equity investment in MyoV. By way of background, BioBeat has developed the only clinically validated, FDA-cleared cuffless patch-worn ambulatory blood pressure monitoring device. It delivers continuous noninvasive blood pressure measurement over a 24-hour period for hypertension diagnosis and management in the outpatient cardiac recovery setting. KESTRA MEDICAL TECHNOLOGIES, LTD. intends to integrate BioBeat’s technology into our product portfolio to make ABPM data available for patients prescribed the Assure WCD.

Hypertension affects approximately 120,000,000 Americans, and results from ACE PAS underscore the clinical relevance of the collaboration. 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, 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 than heretofore have gone unprotected.

Brian Webster: 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.

Brian Webster: I would 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 two of the state's four largest managed Medicaid plans. We are considering contracts with all the remaining managed Medicaid plans in Florida.

Second, KESTRA MEDICAL TECHNOLOGIES, LTD. has recently been 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 9,000,000 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% up to $3,589 a month on January 1.

Brian Webster: 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 twelve months ago, approximately 70% of our billings were for patients with in-network benefits. This figure is now in the low eighties. The higher in-network mix 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 regional and local payers we are working to bring under contract. In conclusion, the fundamentals of KESTRA MEDICAL TECHNOLOGIES, LTD.'s story and business remain strong.

The WCD market is expanding, KESTRA MEDICAL TECHNOLOGIES, LTD.'s revenue growth accelerated to over 60%, gross margin has increased meaningfully, and we have fortified our balance sheet. In the twelve months since our IPO, our execution has been strong across all elements of the business. The foundation we have built positions KESTRA MEDICAL TECHNOLOGIES, LTD. for strong and durable growth for years to come. 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 KESTRA MEDICAL TECHNOLOGIES, LTD. 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.

Vaseem Mahboob: Thank you, Brian, and good afternoon, everyone. Total revenue was $24,600,000 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 nine quarters in a row.

The continued expansion in gross margin was driven by the attractive unit economics inherent in KESTRA MEDICAL TECHNOLOGIES, LTD.'s rental model, an increase in revenue per fit from more in-network patients, and a 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 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.

Vaseem Mahboob: We are also continuing to see improvements in all three key drivers of our conversion rate: our prescription fill rate, our BIN 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. 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 drive operating leverage as we scale the business.

Vaseem Mahboob: GAAP operating expenses were $47,700,000 in the third quarter and included $1,500,000 of nonrecurring costs from professional fees and expenses primarily related to the BioV transaction and our recent equity offering. GAAP operating expenses were $27,100,000 in the prior-year period. Excluding nonrecurring costs and stock-based compensation, operating expenses were $36,100,000 in 2026 compared to $24,800,000 in the prior-year period. The increase was primarily attributable to investments in commercial expansion and public company costs. GAAP net loss was $34,200,000 in the third quarter compared to a GAAP net loss of $21,800,000 in the prior-year periods. Adjusted EBITDA loss was $21,200,000 in the third quarter compared to an adjusted EBITDA loss of $16,300,000 in the prior-year period.

Cash and cash equivalents totaled $291,000,000 as of January 31, which includes the net proceeds from our public equity offering in December.

Vaseem Mahboob: Before I turn to guidance, one housekeeping item. At March, it will be twelve 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 $93,000,000, representing growth of 55% compared to fiscal year 2025. This compares to prior guidance of $91,000,000 and our initial fiscal year 2026 guidance of $85,000,000.

Underpinning this guidance is our expectation that we will continue to see strong growth in prescriptions as we increase market share with existing customers and 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.

Brian Webster: Thank you. Operator?

Operator: Thank you. We will now open for questions. To ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Please limit yourself to one question and one follow-up in the interest of time. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Travis Steed from Bank of America Securities. Your line is open.

Travis Steed: Hey, congrats on the good quarter. I guess first, just kind of curious as you look into next year and think about early 2027 thoughts and the puts and takes you would talk about on the model from a high level, and if you are comfortable with the $133,000,000 that the Street is modeling for in consensus today.

Vaseem Mahboob: 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 medtech growth in 2027 and beyond. We will be happy to provide more color in the next earnings call.

Travis Steed: Alright, 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 close to 11%. So you are seeing a real acceleration. Any color you can give on the ground on what you are seeing that drives this acceleration and the durability of the higher market growth rate going forward?

Brian Webster: Yes, thanks for that question, Travis. At the time of the IPO twelve months ago, we had the market growth on a dollar basis at about 8%. Then, as you just indicated on our last call, we had it somewhere closer to 11%. Now we are seeing it accelerate. I think what we are seeing is a couple of dynamics that are driving that. First of all, you have KESTRA MEDICAL TECHNOLOGIES, LTD. increasing the size of our commercial team, so we just have a bigger footprint. We have more voice 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 six months ago or so that pointed to elevated risk in this patient population, and then that was corroborated by our even bigger study that we released, which also pointed to higher risk in this patient population than many thought.

So I think what we are seeing is a couple of clinical studies that are really identifying risks in the population, then you are seeing the expansion of the KESTRA MEDICAL TECHNOLOGIES, LTD. commercial team really driving that voice, and we are seeing our competitor coming to the realization that if they want to grow their business, they are going to have to expand the market because we are going to be taking a bunch of their share. So I think it is a combination of all those things that is leading to that market growth.

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.

Operator: One moment for our next question. Our next question will come from the line of Matthew O'Brien from Piper Sandler.

Matthew O’Brien: Afternoon. Thanks so much for taking the question. First one is on the sequential bump that we saw in prescriptions. That is the best that you have done, I think, the last couple of years in terms of the data that we have had. 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? Are you really accelerating the market, or is it more share shift right now versus market, and with everything that is going on, the market benefits maybe come over the next couple of years?

Brian Webster: Thanks, Matt. When we deconstruct where the prescription growth is coming from, the good news for us is that we are seeing it come not just from productivity improvements in our base territory managers, but we are also seeing the new territory managers that we have been bringing on come up our productivity curve very consistently with our model. We are glad to see both of those dynamics. As we look at where that prescription growth is coming from, our math points to about 70% to 75% of that coming from installed base or current market share shift 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 and an incumbent this large, most of the opportunity in the early days here is coming from winning current customers that are prescribing WCDs.

Matthew O’Brien: Okay. Makes sense. As a follow-up, I would love to ask about gross margin because that was really good in the quarter. I am looking at the stock down a little bit in the aftermarket, and it might just be tech-related specifically, but I think it might have to do with the guide for the full year. Given all the momentum and the conversion rates, prescriptions are so strong. I think maybe some had been expecting a little bit more here for the full year. Can you talk about anything that is going on competitively or pricing-wise that could be a headwind here in fiscal Q4 versus just traditional conservatism on your part?

Brian Webster: Thank you. Pricing is predictable. There are no headwinds in pricing. The competitive environment is one we know extremely well. From our perspective, we have grown the business in the mid-50% over the first few quarters of the year. We think as a starting point for the fourth quarter, that is a reasonable place to be. We are excited about growing our business by the mid-50% year over year. That is a significant achievement. We feel really good about that, and we feel really good about the trajectory we are on. I do not think there are any tailwinds other than we are just out there competing every day.

It is a daily run-rate business, and we are focused on winning every day out in the market.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Larry Biegelsen from Wells Fargo. Your line is open.

Nathan Trayback: Hi, this is Nathan Trayback on for Larry. Thanks for taking the question. Can you talk about what you are seeing from competition in the market? Just a follow-up to that, are your reps seeing any greater difficulty in taking share after ZOLL's recent upgrade to their WCD?

Brian Webster: Thanks, Nathan. We are not hearing anything related to ZOLL's new larger WCD that they launched. I think they are in a slow launch of that product. They are not going to replace that massive fleet that they have overnight, and my guess is that only a fraction of the patients out there are even being offered that product at this point. We are 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 are doing that by trying to focus on being easy to do business with in terms of order processing, insurance coverage, and service level. Those are really the things that they can compete on because they know that from a product perspective, we have clear differentiation from their product. That is what we are seeing right now, but we have not seen any impact of their new rollout or their new product.

Nathan Trayback: Okay, great. At a high level, you are approaching about 20,000 scripts by our math in fiscal 2026, and the market is approaching 140,000. There are still a good number of physicians that do not prescribe WCD. In your view, what is it going to take to get physicians off the sidelines and show more interest in WCD?

Brian Webster: I think the market growth will continue. If we are in the low- to mid-teens today, then it is reasonable to think that over the next couple of years, as we expand our footprint, we are going to see that market growth continue to accelerate. But when it comes to really growing the market—doubling or tripling the market—it is going to require updates to the clinical guidelines.

What we talked about with our ACE PAS study on 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 help to clarify what are the remaining steps to get guidelines changed, if any, so that we can be focused on that. We are in the process now of working to get our ACE PAS study published, and that is the immediate next step for us.

To really double and triple the market, which we think we are highly capable of doing, it is going to take some guidelines changes.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Michael Polark from Wolfe Research. Your line is open.

Michael Polark: Hi. Good afternoon. Question on your vision for the sales force and the size of it. At the end of your fiscal 2025, you said territories were 80, and the vision was to double that over the next couple of years. I heard 130 targeted by April. If 80 doubles, it is 160 in, call it, fiscal 2027 by the end of the year. That would mean you are adding 30 territories in fiscal 2027 versus adding close to 50 in fiscal 2026. You just raised a bunch of fresh financing. Are you interested in going faster than that vision, or is that still the vision?

Brian Webster: Mike, thanks for the question. We are in our FY 2027 planning process right now. In fact, we had our board meeting last week, and our board got their first look at our FY 2027 planning assumptions. We will be refining that over the next 60 days or so, and that will be one of the key questions. You are directionally right in your math in terms of what we have 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.

Being able to execute our business model and keep promises to the clinicians—those are the things that we are going to try and balance as we work our way through our planning process. That is definitely a topic on the table right now. We are excited about the progress we are making. There is certainly a contingent that is driving towards that outcome.

Michael Polark: Helpful, Brian. For my follow-up, I want to ask on the conversion rate. If I squint, I see it up year on year, clearly, but versus the prior two quarters of the fiscal year, it is a little bit of a dip back down. Can you remind us, Vaseem or Brian, of the dynamic there? Is that simply the quarter that was just reported is January and deductibles reset, so patient collections are lower, bad debt is higher, or other influences you would have us think about quarter to quarter to quarter?

Vaseem Mahboob: Great, thanks, Mike. We are really excited about all of the progress that we are making on rev cycle. Just a reminder, we have made a significant improvement in that rate. Fiscal year 2024, we were at 38%. 2025, we finished at 44%. In this most recent quarter, we had 46%. So we were up three points on an adjusted basis. At the same time, all KPIs that we talked about on our conversion rate are trending in the right direction, so we feel really good about where it is going. You are right; 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 are really the deductibles that reset 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 submit. Again, great progress on conversion rate and all of the KPIs related to that, and we will continue to show progress.

Operator: Thank you. One moment for our next question. Our next question will come from the line of Frederick Wise from Stifel. Your line is open.

Frederick Wise: Good afternoon. Hi, Brian. Hi, Vaseem. I was hoping you could expand on your comments and get more in the weeds on a couple of topics. First, Florida. Brian, that sounds like really important and major news. You are the market share leader. You have signed two of the largest managed Medicaid plans, and it sounds like two others could be relatively imminent or soon. Help us understand better how big a deal it is and how to think about it. Does this overnight accelerate growth in Florida? Obviously, a huge market.

Brian Webster: Thanks, Rick. We appreciate the question. We are excited about that. If you were to ask any of our Florida territory managers what their biggest challenge has been in the last year, they would say the lack of a Medicaid license. Removing that barrier is, as our chief commercial officer likes to say, like removing a big pebble from your shoe for the reps. In the actual account, when our rep is trying to convert a prescriber completely over to KESTRA MEDICAL TECHNOLOGIES, LTD., it is very difficult, impossible in fact, when you do not have that Medicaid number and the ability to serve that part of the population. It is a big population in Florida.

That is a limiter on how high you can go on market share capture. This will definitely be a benefit to the Florida team. It will take a little time to roll through as we get the actual agreements in place and rolled out to our team, so it will not be an overnight thing. It will be something that we will see progress on quarter over quarter, but we are very excited about that.

Vaseem Mahboob: Rick, I will add to that on the gross margin side. In some of the accounts that we had already converted and where we were taking all of those patients, we were basically getting a goose egg for those. 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 will see a nice tailwind on gross margin in that business as well.

Frederick Wise: I was not going to ask you about gross margin this quarter because you did so well, but you brought it up. Cost per fit came in at, I think I am saying it right, 14% this quarter. How big a factor is that in the gross margin improvement? You keep doing outstandingly well. 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?

Vaseem Mahboob: Thank you for that comment, Rick. We continue to make tremendous progress on gross margins, and as Brian mentioned in his prepared remarks, this is the ninth quarter now where we have shown sequential improvement. I was looking at it earlier—this is from massively north of negative 200% gross margins to where we have come. Incredible job by the team to get us there.

In terms of the mechanics, other than the unit economics that we talk about, which is just inherent to the rental model where you get that depreciation leverage and volume leverage, we think that on some of the cost improvement programs—not on the hardware; remember, we have to protect that fleet and the fleet 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 coming at a lower cost. We will continue to see the team make really good unit cost reduction progress in the next few years.

The good news is we have good line of sight to 70% plus gross margins that we aspire to, and this quarter is another proof point that we can get there.

Frederick Wise: Gotcha. I am going to slip in one more if you do not mind. The FDA approval for your new algorithm—you talked about it a little bit, Brian. My question is to expand on your comments. As a prescriber or patient, what am I going to experience, and is that going to be an important or meaningful step? How meaningful is it once you get that all rolled out?

Brian Webster: Thanks, Rick. We are very excited about that change. It is a change we have been working on for well over a year since we started to see some of our clinical data. As we started to get past 10,000 to 15,000 patients, we saw opportunities where we could further reduce the already market-leading false alarm rate and also reduce the inappropriate shock rate. The inappropriate shock rate is 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 product. The false alarm rate, as you are aware, is related to patient compliance, and the inappropriate shock rate is related to patient safety.

We did what we believe was the right thing: we looked at our data, learned from it, and then made adjustments to the algorithm to make it even better than it already is. I am proud of the team because we made choices when we decided to invest in that algorithm. We are 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 any competitor, and it is going to help to validate our product one step further.

Operator: Thank you. One moment for our next question. Next question will come from the line of Marie Thibault from BTIG. Your line is open.

Marie Thibault: Hey, good evening. Happy Saint Patrick's Day, and thanks for taking the questions. I wanted to follow up on the Veterans Affairs win, now being on schedule there. Can you tell us a little bit more about KESTRA MEDICAL TECHNOLOGIES, LTD.'s plans on how to approach the network, expectations for the ramp there, and any other hurdles as you start to deploy into some of those VA hospitals?

Brian Webster: Thanks, Marie. We appreciate the question. It is another big win in market access for KESTRA MEDICAL TECHNOLOGIES, LTD. As you are probably aware, if you are trying to market your product in a VA hospital and you do not have a Federal Supply Schedule number, then you are handicapped and spinning your wheels. Getting that number is essentially a license to go in and serve those institutions. We are rolling that out territory by territory because almost every territory in our commercial footprint has some VA institutions in it. We are now giving our reps the ability to go in and knock on those doors when they have not really had that ability before. It is a great opportunity.

We have already seen, just in the last four to six weeks, some really terrific wins at some of these VA hospitals. It is a strategy we are going to continue to roll out. We are going to get the KESTRA MEDICAL TECHNOLOGIES, LTD. team really fired up about protecting these veterans who have protected us, and we are excited about that opportunity.

Marie Thibault: I appreciate that. As a follow-up that is a little more high level, it was referenced earlier that your sequential uptick in prescriptions this quarter was the highest we have seen in your history here. 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: you have new reps on board, you have the ACE PAS data, you have done a lot of medical education, and you have had an expanded role for the clinical specialists as well. You have made a lot of changes that are beneficial as well.

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

Brian Webster: If you want a really high-level answer, the answer is no. There is no reason. I think all of the things that you said are right on. We are investing—FY 2026 is a year of investment in the commercial footprint. We have been very clear about that as part of our strategy from the onset, and we have executed really well against that investment. As you know, it is no easy task to go out and recruit, hire, onboard, retain, train, and get them up the curve—hiring 50 new territories, which is essentially what we are going to end up doing this fiscal year. We are doing that.

We are adding the clinical folks to anchor down some of those territories, as we have talked about, and we are investing in the future. Our intention is to build a long-term, durable commercial engine at KESTRA MEDICAL TECHNOLOGIES, LTD., and we are going to feed that engine with continuous innovation. That engine is going to have great innovation, great product differentiation, and great support because, at the end of the day, this is still a service business. We feel really good about the investments we are making and the foundation that we are building.

Operator: Thank you. One moment for our next question. Our next question will come from the line of David Roman from Goldman Sachs. Your line is open.

David Roman: Thank you. Good afternoon, everyone. I appreciate you taking the questions here. Maybe I could just start with the territory expansion that you discussed. Can you help connect 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?

Brian Webster: Yes, David, thank you for the question. As you can appreciate, when you are growing a sales force, you are dealing with different dynamics. One dynamic is you add new territories, and the other dynamic is how quickly you can get them on board, get them up the productivity curve; that is a big question. The other question is, with all your base reps, can you continue to see productivity? What we do not want to have is a situation where the only way we can grow is by expanding sales territories. That is where we focus on productivity improvements in our team. We have invested heavily in training.

We have invested heavily in innovation, which will continue to help productivity. I think what we are going to see over the course of the next year is a bunch of new territory managers who have a little time in the saddle, so to speak, and we are going to see them do some great things. I do not think that our model requires us to continually add new reps. We have lots of opportunity to gain market share and to grow the productivity levels on a territory level. As you combine and roll all those up, that equals growth without having to continue that really aggressive sales force expansion.

David Roman: Then maybe just a follow-up. Vaseem, in the past you have talked about CapEx spending as one of the best leading indicators of your confidence in forward revenue growth. Can you talk about where you are in that cycle and how you are 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 are not going to make FY 2027 comments here, but if I take your past comments on CapEx and try to tie it to the forward outlook, maybe you could help connect the dots there for us a little bit.

Vaseem Mahboob: Sure. Thanks, David. We have talked about this in the past. The leading indicator for us, going down this path of building out the distribution team, would be to hire the CapEx because when you deploy those reps, you want to make sure they have the right level of inventory and can maintain their service level, which is critical in our business. As we have said, the planning assumption—or at least what we are guiding everyone on—is long term, 10% of our fittings are going to come from new units; 90% of them are going to come from reconditioned units, which means we are our largest supplier ourselves.

I think the team has done a fantastic job to drive the returns engine. At the same time, when you do that math on the 10% coming from new units, that gets you to the CapEx numbers, including some of the replacement CapEx investments, to about $30,000,000 a year for the next couple of years at least. When the Q comes out, you will see that we had a $9,000,000 investment in CapEx in this quarter. It should give you a lot of comfort that $9,000,000 investment is ahead of us going from the previously publicized number of 100 reps in November to 130 by the end of the year.

David Roman: Okay. 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-$20,000,000. Is that isolated to the quarter? How should we think about that number on a go-forward basis?

Vaseem Mahboob: We are very happy with where we ended up on the cash burn. Again, like I said, $9,000,000 of that $28,000,000 burn was CapEx. $18,000,000 or $19,000,000 of that was the operating burn, and we feel that we are going to be in that range at least for this next year.

David Roman: Thank you very much.

Operator: Thank you. That will conclude our Q&A for today. I would now like to turn it back over to Brian for any closing remarks.

Brian Webster: Thank you, and thank you everyone for the questions and for your attendance this afternoon. I just want to reiterate that we are very excited about the results that we saw in Q3. We are seeing the business model come together. We are seeing terrific performance out in the field as we scale up new reps, and I am very excited about the caliber of the new territory managers that we are 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 MEDICAL TECHNOLOGIES, LTD. very much is, when you get into the November–December holidays and then you get into the January new plan year for insurance, there are a lot of variables in Q3 that, quite frankly, make us nervous every year. Our team executed 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 the long-term, durable growth engine that we are talking about. We are very pleased with the quarter and appreciate everybody joining the call. Thank you very much.

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

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