Kestra Medical's Q2 2026: Contradictions Emerge on Growth Drivers, Conversion Rate Expectations, WCD Market Share, and Revenue Conversion Drivers

Date of Call: None provided

Financials Results

• Revenue: $22.6M, up 53% YOY
• Gross Margin: 50.6%, up 11 percentage points YOY (first time >50%; eighth consecutive quarter of sequential expansion)

Guidance:

• Revenue for fiscal year 2026 raised to $91.0M, implying ~52% growth vs FY2025 (prior guidance $88M; initial $85M).
• Management expects continued prescription-driven revenue growth supported by higher in‑network mix and revenue-cycle improvements.
• Anticipate continued gross-margin expansion in H2 FY26 with a multi-year path to 70%+ gross margins.

Business Commentary:

• Revenue and Gross Margin Expansion:
• Kestra Medical Technologies reported revenue of $22.6 million for Q2 fiscal 2026, with a 53% year-over-year increase, marking the eighth consecutive quarter of sequential gross margin expansion.

• The growth was driven by increased prescription volumes, a higher in-network mix, and improved unit economics.

• WCD Market Growth and Market Share:

• Kestra's revenue growth of 53% in Q2 was supported by a 54% year-over-year increase in prescriptions, reflecting a growth in market share and activation of new accounts.

• The acceleration in WCD market growth to low double digits was attributed to the presentation of the ACE-PASS study and increased clinical education efforts.

• Payer Network Expansion and Revenue Cycle Management:

• Approximately 80% of fittings were for patients with in-network benefits, up from 70% at the IPO nine months ago.

• The increase in in-network patients was driven by expanding payer coverage, improved revenue cycle management, and geographic targeting of high-volume prescription areas.

• Clinical Evidence and Market Impact:

• The presentation of the ACE-PASS study, involving over 21,000 patients, demonstrated the Assure system's effectiveness and potential market impact.
• The study's findings are expected to influence clinical guidelines, increase market adoption, and support future growth in the WCD market.
  
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted 53% revenue growth to $22.6M, gross margin at 50.6% (up 11 points YOY) and said the fundamentals were 'fortified' in Q2; they raised FY26 revenue guidance to $91M and reiterated a multi-year path to 70%+ gross margins.

Q&A:

• Question from Matthew O'Brien (Piper Sandler): Please discuss cadence of the FY26 guide (especially Q3 seasonality) and use of proceeds from the recent equity offering.
  Response: Guidance reflects run-rate drivers (prescriptions, in‑network mix, RCM); management tracks KPIs daily and aims for consistent quarterly results. Proceeds fortify the balance sheet, de‑risk future capital needs and provide optionality to accelerate growth pending annual planning with the board.

• Question from Larry Biegelsen (Wells Fargo): Are you seeing impact from ACE‑PASS on market growth (share capture vs market expansion)? Also update on rep productivity/hiring plans.
  Response: ACE‑PASS is accelerating demand (company estimates market now growing low double digits); anecdotal clinician behavior change and ramped medical education. Salesforce grew from ~70 to ~100 reps; on plan to roughly double original headcount within ~6–8 months with potential to accelerate.

• Question from Michael Polark (Wolfe Research): Is guideline change a realistic needle‑mover and what is the timing? Also clarify the market/competitive math.
  Response: Guideline revision could occur (AHA/HRS Arrhythmia Committee reviews ad hoc) but timing is uncertain and not required for the company's growth plan. Kestra estimates ~13% market share; competitor reported ~5% growth, supporting a mix of market expansion and share capture.

• Question from David Roman (Goldman Sachs): What is driving category acceleration and update on conversion metrics (prescription→fit, fit→revenue) and wear time?
  Response: ACE‑PASS and other large studies confirm elevated early SCA risk and strong wear‑time (Assure 23.1 hours trial metric); conversion rate improved to ~48.8% this quarter (vs ~48.2% prior year; FY24 38%, FY25 44%), driven by higher in‑network mix, fill rates and RCM gains.

• Question from Marie Thibault (BTIG): Is >50% prescription growth sustainable and are APPs/PAs contributing as prescribers? Also comment on OpEx cadence.
  Response: Management expects prescription strength to be sustainable—winning share and adding hospitals; prescribers include APPs/PAs in addition to physicians. OpEx increased due to commercial expansion and RCM investments and will continue to support growth initiatives.

• Question from Travis Steed (Bank of America Securities): Any update on clinical specialists impact in accounts and path to 70% gross margins?
  Response: Clinical specialists placed in high‑producing accounts are freeing reps to open new accounts; early returns positive. Gross‑margin expansion is driven by rental unit economics, in‑network mix and depreciation/volume leverage; management expects continued H2 expansion and multi‑year path to 70%+.

• Question from Rick Wise (Stifel): Can you describe the product/technology innovation roadmap—updates vs new products?
  Response: Assure was architected as three platforms (WCD, wearable, digital); R&D will innovate across all three to extend capabilities and add therapeutic/diagnostic features guided by ACE‑PASS insights; specifics remain undisclosed for competitive reasons.

Contradiction Point 1

Growth Drivers and Market Share Expectations

It involves differing perspectives on the primary drivers of growth and the timeline for achieving market leadership, which are crucial for investor expectations.

Is there a timeline for guideline adjustments, and will they have a significant impact? - Michael Polark (Wolfe Research)

2026Q2: Our growth profile does not rely on guideline changes, but we do believe the clinical evidence warrants review. - Brian Webster(CEO)

What's driving the confidence to raise guidance above the beat? What's the expected growth cadence for the year? - Travis Steed (BofA Securities)

2026Q1: Our guidance is based on our confidence in executing our strategic initiatives, which includes expanding our commercial footprint and growing the overall market. - Brian Webster(CEO)

Contradiction Point 2

Conversion Rate Expectations

It involves differing expectations for the conversion rate, which is a critical metric for company performance and investor expectations.

What are the key drivers of the accelerated category growth, and how are the conversion rate and average wear time? - David Roman (Goldman Sachs)

2026Q2: We are seeing the conversion rate improve significantly, reaching approximately 49% this quarter, up from 38% in fiscal year 2024. - Brian Webster(CEO)

What growth rate in the conversion rate does the guidance assume? - Larry Biegelsen (Wells Fargo Securities)

2026Q1: We expect a 2.5-3% increase in the conversion rate, driven by improved in-network mix and enhanced revenue cycle management. - Vaseem Mahboob(CFO)

Contradiction Point 3

WCD Market Growth and Share Capture

This contradiction involves differing perspectives on the growth and share capture opportunities within the WCD market, which directly impacts the company's revenue and market position.

Can you clarify the impact of AHA data on the WCD market? Are you seeing share capture, market expansion, or both? What are your sales force hiring plans post-secondary offering? - Larry Biegelsen (Wells Fargo)

2026Q2: The WCD market growth is in low double-digits, accelerating significantly. Anecdotally, we're seeing positive impacts from the clinical data, with clinicians reassessing patient risk levels and expanding their decision-making. - Brian Webster(CEO)

Did winning a sole-source contract with a risk-bearing provider network signal a broader trend, and what motivated the customer’s decision? - Michael Polark (Wolfe Research)

2025Q4: We intended to build out the number of territories as quickly as we possibly can to support the prescription growth strategy. As a result, we believe, while we are seeing some share gain in the market, it was still too early to say that we are seeing significant share gain. - Brian Webster(CEO)

Contradiction Point 4

Revenue Conversion Rates and Drivers

This contradiction relates to the company's explanation of the key drivers behind the improvement in revenue conversion rates, which directly influences revenue and operational performance.

What are the key drivers accelerating overall category growth, and how are conversion rates and average wear time trending? - David Roman (Goldman Sachs)

2026Q2: The conversion rate has improved significantly, reaching approximately 49% this quarter, up from 38% in fiscal year 2024. Our strategy remains unchanged, deploying new reps into high prescription density and high coverage areas. - Brian Webster(CEO), Vaseem Mahboob(CFO)

What are the driving factors behind the 44.8% revenue conversion rate increase and what are the most influenceable elements? - David Roman (Goldman Sachs)

2025Q4: The fill rate is better than our competitor's, but the biggest driver is a higher in-network patient mix, which unlocks the rental business model. We're focused on expanding in-network payer coverage and enhancing revenue cycle management processes. - Brian Webster(CEO)