Stifel 2026 Healthcare Conference - KESTRA MEDICAL TECHNOLOGIES LTD

Let's get going. It is my very distinct pleasure to welcome Kester Medical, to my left, Brian Webster, President, CEO, and Director, and to Brian's left, Basim Maboub, Chief Financial Officer. Welcome to you both. Thank you so much for being here. We were just talking before we got started, and it just feels like Kester continues to execute excellently well. Thank you for the consistent performance. And the company, since coming public in March 25, has continued to build on its commercial presence in wearable cardioverter defibrillators, or WCDs, as a reminder. Brian, let's just get right into it. you know I was reflecting on my initial launch of coverage and the story was you're bringing a differentiated alternative into a well-established market with one competitor but since you've launched the WCD market growth is essentially doubled reaching 14 percent on dollar basis in the in the last fiscal year at the highest level talk to us about those market dynamics that led to that is that sustainable that faster growth and just a high level what's it mean for Kestra's growth outlook from here yeah well thank you for the question and thanks for the invitation to be here always great to see you you know I think what's first and foremost you you have to remember that the whole reason that Kestra became a company and that we took a shot at this was we felt like there was a a patient problem that needed to be solved and that was these patients were not willing to wear the competitive product because of the issues around wearability comfort gender specificity false alarms all the all the things that we know to be the issues and we set out to go solve those and we've solved those and so now it's a question of how do we how do we get that product out into the hands of more of these patients so solving the problem the clinical problem was was job one I think you know having any time you disrupt a monopoly and you sort of wake them up I think in medtech there's plenty of precedents where you've seen companies that you know come into a market like that and then the market tends to grow faster because there's somebody else amplifying the marketing message for the category we've had a lot of good clinical evidence that has been has come forward in the last couple of years we of course published our post approval study data which was 21,000 patients worth of data which fantastic and then our competitor published their own data about another 19,000 patients worth of data so you have between those two 40,000 patients worth of clinical data on the category and in one important respect it was all saying the same thing which is there's a there's part of this patient population that is at higher risk than everybody understood and that's the non ischemic cardiomyopathy or the heart failure type patients who have higher risk of cardiac arrest than than physicians really understood. So we're out there, we're pushing that message, our competitor's pushing that messages, and part of that is now being adopted by these physicians because they're saying, hey, I need to think about the spectrum of my patients a little bit differently. So I think it's a combination of all those things that's leading to the market growth. At the end of the day, there's still 850,000 patients a year that are indicated for a WCD, and only one in seven are being prescribed one. So to your question about how durable is the growth, we think it's gonna be a growth story for a long time, the market growth. And then Kestra, obviously we think we have opportunity for really exciting growth for an extended period of time. So we think that's durable because there's so many more patients that can be eligible for a product like the WCD. Another aspect of growth, of course, is innovation. And Brian, on the September call, you outlined AI opportunities and patient support, revenue access, collections, commercial productivity. Just, can you help flesh that out for us a little bit more? What's already happening versus what's being tested? How do these kinds of tools change the patient experience or the sales rep's day? What's it mean to the outlook for a customer? Well, I think we think about AI in two big, broad ways. One way is to assist us with operating the business model, and the other is to help us with the product offerings, right? And so on the business model side, you know, we focus it in three places right now. One is outbound connection with patients. So it's a rental model, remember. So we have to go get those devices and get them back so we can refurb them and get them back out to the next patient. So that whole process of how you contact a patient, how you confirm with the patient, how you deliver the return processing, all those things are, have been manual, but we're automating those with, with, you know, specific customized agents that will work on our behalf. So that's one way. And then you have the, the inbound customer care activities, communication with patients, solving simple issues that a, that a bot can solve. And I would call that just standard customer care kind of leverage. The second big area on the operational side is all the things in revenue cycle management, it's very transactional, right? Every day there's many, many, many transactions. Prior authorizations that have to go out to a payer. We, our AI, should be able to talk to the payer AI and get the prior auth done without human intervention. Things like the medical record reviews that have to happen to be able to submit a claim we can do that and we are doing that today with ai instead of humans we used to have a clinical team that that would do that now we use ai to do that very effectively by the way and just all all of the areas in rev cycle that are real process oriented it's an opportunity as we scale the company up to implement AI to bend the curve so that we don't have to ultimately hire as many people to do the same job and then finally on the operational side of the business you know we use AI to to help our sales teams be more productive and it's all the way from you know territory planning to individual account planning all of the tools that we have we put at their disposal so they can do a great job of targeting figuring out where they're going to spend their time how to prioritize their day and ultimately that leads to productivity and I assume share retention and loyal customer loyalty etc and better outcomes obviously for patients it also in the September call intriguingly because I've been asking you since pre-IPO, what else was in the pipeline, and you've been very discreet. You described a late-stage project that would extend issuers' performance, adding a capability that does not exist on WCDs. You said you were going to share more over the next quarter. Well, here we are. Feel free. Well, the quarter's not over yet. So, yeah, we're not quite ready to dive in on that particular one yet, but we're getting close. And I think before the end of the calendar year, we'll certainly be ready to do that. You know, we talked about on the earnings call a couple of different innovation. One is the blood pressure that we've already talked about, and the other is this other project that we're working on. And we're trying to get the project to the end of its milestone, which is submitting it to the agency. So once we do that, we'll be ready to talk about that. How do we think about, and I'm sure knowing you, there's other stuff behind that. Are these features, and I'm sure they're patient and clinician benefits, but from a financial point of view, are these products that add extra dollars to the cost or the rental? And I assume if it's software, it's going to be positive for margins. I mean, so good for growth, good for adoption, good för margins. Is that, I'm putting words in your mouth, but is that the right way to think about what you're aiming at? Yeah, you know, I think yes to all of that. You know, we wouldn't be bringing it out if it didn't have great clinical benefit and clinical utility. So that's job one. And, you Know, we're trying to solve additional problems. And in our ACE-PAS FDA registry, we saw other issues that these patients have besides VT and VF. And we're trying to help solve some of those other issues with some new technology. And that's why we're doing the blood pressure monitoring. That's why wir're doing this other capability. And we would expect that, you know, right away that this new capability would give us the ability to further differentiate our product from the competitors. And so that's an opportunity to accelerate share capture. And then over the longer term, as we gain more clinical evidence, we would suspect to be able to garner additional monetary benefit from it as a standalone capability. So it's a short-term, long-term kind of a combo, but designed to be a good margin benefit as well as a really exciting clinical benefit. Remind me on the blood pressure monitor. I've just forgotten in this moment. Has it launched or is it going to? Or have you started rolling it out? Yeah, this is the BioBeat partnership. Right. And part of that agreement was we entered into a co-development project with them where we're taking their product and going to do some modifications to it. So that's in R&D right now. And we think it's probably on the market. It's got to go through the rest of R&B and then regulatory cycle as well. So I think it'll be on the markets soon. and it's not like a five-year project kind of a thing. It's shorter term. And just thinking about the portfolio longer term and these specific projects, I assume Assure is foundational to everything you're thinking about, but how do we think about Assure and maybe a broader customer portfolio? What's it look like in three to five years? Is it simply, and I don't say this lightly, Is it simply enhancing the core WCD with complementary monitoring or servicing capability? Or are there other adjacent markets or entirely new products that you have a platform that you could expand into? Well, I think we will very certainly continue to expand the Assure platform because it was developed as an extensible platform. And, you know, I think if we were sitting here in five years, what we would be talking about is a platform that is not unlike if you were to call 911 right now and say you have a medical emergency and the FDNY paramedics show up, they're going to bring a big monitor defibrillator with them that has all kinds of monitoring and therapeutic capabilities. in five years you're going to see the Assure system is going to have all that capability but in a little wearable that people go home with interesting and so you think about all the diagnostic benefit that that can give to clinicians when they're dealing with these patients so that's that's clear right down the pipe for us and the the blood pressure is sort of the first one of those what we expect will be more and then we we think that some of the technology we've develop can also branch off into new categories that can help us to go after new patient populations. So it'll be a little bit of both, Rick. Okay. You recently created my favorite new title of the year. You hired a Senior VP of Customer Experience. You know, what a great title. And I'm just curious, just your thoughts as it all gets underway, what's changing? What is this individual charged with? And what are the priorities there that are going to make a difference for the company over the next few years? Yeah, well, we hired Curtis as a really experienced, amazing gentleman. and he's going to do some terrific things with our team. We're scaling the business up. And, you know, we know that the service model in this business is really important. You generally, when we get a prescription from a physician, that prescription has to be fulfilled within 24 to 48 hours. So that means we have to have all the mechanisms to be able to not only get them approved for the product, But get them fitted with the product, get them trained, get them cared, you know, after fitting care. All those things have to be delivered and be delivered very quickly because we have to win with the service model. You know, and our view is when we compete, we compete in every area. We don't just compete with the project. We're going to compete with a product. with the best, most professional sales team, the best most professional service and customer care team we're going to compete with the Best IR team and the Best Finance team and everybody has to compete so we think that by adding some more horsepower there that he can help us to scale the business up so that we're just excellent at delivering that customer experience And customer being a two-pronged customer in our context, one is the prescribing customer and the other is the patient themselves. And so he's going after both of those to make sure that we scale efficiency, we implement AI appropriately, but we have at its core this really powerful, you know, mission to do a great job of protecting these patients. Well, you definitely have the best IR team, for sure. Thank you. You talked about ACE Pass and the importance of ACE Pass and the impact on positions. Maybe talk about the impact of having that kind of data in hand on payer discussions. Remind us where you are in those discussions, including the recent national payer coverage expansion. How is it helping? What should we be thinking about over the next year, milestones ahead on that front yeah i i think the uh the data that comes out of ace pass is is really powerful data because it's such a large study and it does point to the to this risk factor that i talked about earlier being higher than people really understood in the in the payer that you mentioned in that example that was a payer a national payer who from the start of the WCD category had never covered patients who were in the non ischemic category it only covered the post MI and so that left us anytime we took one of their patients who you know who didn't have that coverage we had to fight through the out-of-network process for that patient and that was really difficult and so the fact that they are taking this data and other more recent data and And coming to the conclusion that it's appropriate to protect those patients, that's a big deal because they've been an outlier for a long time. And that's really good indication that people are starting to reevaluate some of the more contemporary data around the WCD. We also recently saw a team of experts at HRS who published a paper talking about the appropriate use of WCDs in protecting their patients. And that's something that they did on their own. They evaluated evidence and they said, hey, we want to put out a strong message about the benefits of this kind of technology. So seeing that kind of thing happen, it means that the clinical evidence is making a difference. We're seeing it out in the field. We're seen it in the market growth. We're see it in payer adoption. We're seing it in papers like I just mentioned from HRS. And you combine all those things, and it says it's making a different. It's a perfect setup for my next question, which is, from the beginning, I've asked you about the potential for a guideline change. And, I mean, you just said it all. When does that expanded use, more data, independent data, all saying the same thing, lead to an upgrade in the guidelines? Well, as you know, the guidelines process is not well defined, so you never know exactly when they're going to take up a topic. And they do that by design so that they can be flexible when new data and new information comes. So it's hard to predict the timing. What we know is we don't expect that we'll need to do a big randomized trial to get there. In fact, we don't really think an IRB would ethically support a trial where one arm doesn't get the WCD. But we do think there's an opportunity to add on to our ACE-PASS data with some of the outcomes data from the patients that were in that study. And so we're working towards that end to help tie that off because that's sort of the one remaining question. You know, we've answered the question very clearly about, does the therapy work? 100% of our patients who got the therapy were converted. So therapy clearly works. The patients wear the device. That was very clear in the data. Over 23 hours a day at medium wear time. So then the only remaining piece of information is, well, yeah, but all that's great, but did the patient survive long-term? and long-term being somewhere post-discharge through six months or something. And so what we're going to do is we're gonna try and bring that information to the table, which we think will be extremely helpful in the discussion when it comes time to pick up this topic about guidelines for the WCD. In what form and when does it bring to the team? The information is all out there. It's all out there in the EMRs, so we're out working to get that kind of information. I think we'll probably have information in the next 12 to 18 months, something like that, that we'll be able to bring to the table. The sales team has done a great job, and you've done a Great Job. Maybe talk about, you know, what's the most important driver for the next year or two on the sales front? You've highlighted faster ramps from your newer reps and continued growth from established reps, success in splitting up higher volume territories. Where are your priorities for the sales organization, the commercial team, for the last year? For the next 12, 24 months? Well, we're going to gradually build the team out. We added about 50 sales territories last year, which is a pretty big slug of new people to bring in and kind of consume. We're planning to add somewhere 30 to 40 more this year. And so adding them, adding the appropriate clinical specialists, support people, all the things that need to happen there, that's all, you know, we're going to do that in a very stepwise and you know gradual progression throughout the year we'll do that and then we're putting a lot of focus on medical education we're doing a lot of work on the app education at different locations around the country because they're involved in the prescription process. We're doing other medical education programs regionally. So we're trying to really step that up and we'll continue to push on that to support the sales teams. And I think it's a combination of those things and then delivering on the services stuff that we talked a little bit about earlier with that team. I think combining all those things together will give us an opportunity to really get out there and win our fair share of the market. You're in the lucky position of already giving us fiscal 27 guidance so I can't even tease you about that but let me pick on Vasim a little bit here. Vasim, you beat first quarter by a couple million, you raised by twice that amount. What gives you the confidence, what gave you the confidence to raise by more than the beat and how should we think about the key puts and takes now behind delivery the full year result yeah I think as we talked about on the on the call and the post calls Rick I think we have very clear line of sight to can our run rates and we are a run rate business we look at them daily weekly monthly quarterly as we said at the beginning so the story this year is very similar to the story last year if you remember we were bringing on those new territory managers at the in the first half of last year and we know what the productivity curve looks like and how they ramp so the second half was 55 the first step was 45 very similar to brian's point we brought in those additional 50 reps they're in the ramp process and in the second half we'll put points on the board so we feel really good about the guide that we put out there and that we got good visibility to that. One of the things that's super critical for us, and I think the best feedback we get, is that we have done what we said we were going to do. So we'll continue to kind of make sure that we a guidance framework that supports the conservatism, but at the same time a real execution story that's a fair way down the middle. That's great. Vasim, just maybe another financial question or so. Gross margin potential longer term, 56.5 in the first fiscal quarter of 27. You raised the target to 70, from 70% to the mid-70s over the next two or three years. What changed your visibility? You know, what do you need to do to make that a reality, that aspiration? It's more of the same. I mean, we have done 12 quarters of kind of gross margin expansion. Yeah. And that's really testament to the business model, the rental model, the unit economics that we have talked about. And I think those two drivers of gross margin accretion are really making sure that we can over those patients from being out of network to being in network. And we've made really good progress at the time of the IPO. If you remember, we were at 67%. We are in kind of the low 80s from here to kind of what we think entitlement, which is the low 90s. I think it's going to be a couple of points a year kind of thing. There's 3000 plus payers in the US. is a very long tail. So it's going to be a journey to kind of get there. But as we convert those patients, you get paid for those patients. X-like price drops to margin. On the cost side, there's really not a whole lot to do other than really drive volume leverage through the business. And as we try and drive more fittings through the P&L, you'll see the margin accretion happen. So it is as simple as that. I love it. And just talk to us a little bit about operating leverage and the path to profitability. How you're balancing funding, the growth, the innovation pipeline, creating the trials, all that with showing a clearer path to profitability, any milestones and metrics you want us to particularly focus on to judge that progress? Yeah, I think the pathway to profitability for us is going to be driven by continued progress on taking market share, growing the market. You heard the great news about the market now growing 14%. So we know the fittings exist. Making sure we have the capex and the inventory to support that service level that Brian talked about. But more importantly, make sure that as we add these TMs that they have enough product in the bag. So I think for us to deliver that top tier meta growth. that we've been delivering, supported by an OPEX growth of about 20% or so. I think you should continue to see with the support of like about 70-75% gross margin, a very clear pathway to profitability. And it's not going to happen five years from now, it's going to in the next couple of years as we have messaged previously. So we feel really good about the investments that we are making, Leveraging AI, AI automation on the volume-based GNA, which is really supporting the claim production and the revenue cycle engine, gives us a lot of confidence that there's more operating leverage to come. Brian, just in closing, I'm always curious, thinking about somebody in the CEO role, how your attention is focused for one period of time on this or that, And it evolves, though, as the company evolves. As you think about the year ahead or the next year or two ahead, are your priorities personally as the leader of the organization shifting more toward, is it innovation? Is it what's next more? Or, no, you're solidly focused on all these execution-related topics we've touched on today. It kind of depends on what time of the day you're talking about. Of course. Because I'm bouncing around a lot. I think that, you know, we've done a lot of work to make sure that we've got a pipeline that we're excited about. And so we've Got the team just executing against that. So a lot of the focus, you know, for me is making sure that as we scale up the business, all the pieces of the business that have to scale up can do it at roughly the same rate so that we don't get ahead of ourselves or behind ourselves in any given element. That's a challenge. And I've done this before with other businesses, and it is really hard to keep sort of supply and demand in sync. And so we're spending a lot of time thinking about that. But I have such a high degree of confidence in our team that it gives me the opportunity to spend a lot OF time really thinking about strategy. And that's ultimately where I'd rather be spending my time, is thinking about over the horizon a little bit on, you know, what are we going to be doing in four or five years, not next quarter, because we've got a team that knows how to execute next quarter. So that's where I'll be spending mine time. That sounds good. On that note, we're exactly out of time. Thank you. Thank you so much to you both for being here and all the great commentary. Thank you, Brian. Thanks for having us. Thank you for having me. Thank you.