Kestra's Q1 2026: Contradictions Emerge on Market Share, Category Leadership, and Conversion Rate Assumptions

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 11, 2025

Financials Results

• Revenue: $19.4M, up 52% YOY
• Gross Margin: 45.7%, compared to 32.9% in the prior year period

Guidance:

• FY26 revenue guided to $88M, up 47% YOY (prior guidance $85M).
• Outlook assumes continued strong prescription growth from share gains and new account activations.
• Revenue per fit expected to rise with higher in-network mix and improved RCM.
• Gross margin expansion expected to continue; long-term target remains 70%+.
• Conversion rate embedded to increase ~2.5–3 points YOY.
• Growth cadence expected to be steady across quarters, not back-end loaded.

Business Commentary:

* Revenue and Prescription Growth: - Kestra Medical Technologies reported revenue growth of 52% year-over-year to $19.4 million in Q1 FY2026, with a 51% year-over-year increase in prescriptions. - The growth was driven by market share gains with existing customers and new account activations, as well as improvements in revenue per fitting due to higher in-network mix and lower cost per fitting.

• Gross Margin Expansion:
• The company achieved a first quarter gross margin of 45.7%, up from 32.9% in the prior year period, marking the seventh consecutive quarter of expansion.

• This was due to the rental model's inherent attractive unit economics, higher revenue per patient from more in-network patients, and reduced cost per fitting through volume leverage and cost improvement projects.

• In-network Payer Coverage Expansion:

• Kestra's in-network payer coverage improved, with 80% of fittings now covered, up from 70% at the time of their IPO.

• This increase positively impacted revenue per fitting and efficiency, contributing to gross margin expansion and revenue growth.

• Commercial Team Expansion:

• The company continued to expand its sales force, aiming to further penetrate existing accounts and focus on new potential ASSURE prescribers in areas with high WCD prescription volume and strong in-network payer coverage.
• This strategy is expected to drive market share growth and increase the number of patients protected by the ASSURE system.

Sentiment Analysis:

• “Revenue grew 52% year-over-year to $19.4 million.”; “First quarter gross margin was 45.7% compared to 32.9% in the prior year period… seventh quarter in a row of gross margin expansion.”; “We expect revenue of $88 million, an increase of 47% compared to fiscal year 2025 (prior $85M).”; “We remain confident in our ability to achieve 70% plus margins over the next few years.”; “Prescriptions… over 4,200… an increase of 51% year-over-year.”

Q&A:

• Question from Travis Steed (BofA Securities): What's driving confidence behind the guidance raise and how should we think about cadence through the year?
  Response: Strong Q1 drives confidence; management is comfortable with the raise and expects steady progress, monitoring trends as the year unfolds.

• Question from Travis Steed (BofA Securities): How are you improving in-network mix and what’s the impact on gross margin?
  Response: In-network mix rose from ~70% at IPO to ~80% and should climb gradually; sales expansion targets geographies with strong coverage, lifting revenue per fit and gross margin.

• Question from Frederick Wise (Stifel): Status and quantification of expanding into higher in-network areas?
  Response: Payer adds are uneven but trending higher; strategy ensures reps have payer coverage to compete effectively, supporting ongoing conversion rate gains.

• Question from Frederick Wise (Stifel): How should quarterly revenue cadence reflect the guidance raise?
  Response: Expect a steady quarterly top-line ramp rather than back-end loading; guidance moved to 47% YOY growth reflecting Q1 strength.

• Question from Matthew O'Brien (Piper Sandler): Drivers of strong prescription growth and exit-rate implications?
  Response: Both fully ramped and new reps are meeting productivity targets, collectively driving sequential prescription growth.

• Question from Matthew O'Brien (Piper Sandler): Are reps focused on converting existing accounts or expanding the market?
  Response: New reps target high prescribers first (plus known relationships); ramped reps deepen penetration and open new, historically under-prescribing accounts.

• Question from Larry Biegelsen (Wells Fargo Securities): What conversion-rate uplift is assumed in guidance and key drivers to improve toward best-in-class?
  Response: Guidance embeds ~2.5–3 point YOY increase; drivers are higher in-network mix (+10 pts since IPO), targeted deployment in high-prescription/coverage regions, Tier-2 payer adds (e.g., Oscar), and RCM enhancements.

• Question from Larry Biegelsen (Wells Fargo Securities): Current market share and path to category leadership?
  Response: Share is ~12% with sales coverage in a little over 50% of U.S. territories; expanding rep coverage is the primary lever and dictates the timing.

• Question from Michael Polark (Wolfe Research): What is the expanded clinical specialist role and where will it be deployed?
  Response: Clinical specialists will assume account-management in high-performing territories to free reps to open new accounts; deployment starts in top territories and scales with results.

• Question from Michael Polark (Wolfe Research): Specs and goals of the AHA late-breaker post-approval study?
  Response: A 24–25k patient study with endpoints of shock success (primary), inappropriate shocks (safety), false alarms, and compliance; aims to provide a large evidence base to counter competitor claims.

• Question from Unknown Analyst (Goldman Sachs): How are compliance rates trending as you scale?
  Response: Median daily wear exceeds 23 hours; after the first week, patients generally maintain usage through the full prescription period.

• Question from Unknown Analyst (Goldman Sachs): What is the cadence and focus of OpEx investments this year?
  Response: Investments will be steady and measured per plan, prioritizing high-quality reps and necessary support; no aggressive bulk hiring.