Kestra (KMTS) Q2 2026: Gross Margin Surges to 50.6% as Clinical Evidence Drives Market Expansion

2025-12-11 | By EarningsIQ Research

Kestra’s Q2 marked a pivotal inflection in margin structure and clinical validation, as the Assure system’s gross margin surpassed 50% and prescription growth outpaced the market. Management’s narrative centered on the accelerating adoption curve, underpinned by new clinical results and a scaled commercial footprint. With a reinforced balance sheet and expanding payer coverage, Kestra is positioning for sustained share gains and category expansion.

Summary

• Gross Margin Breakthrough: Kestra crossed the 50% gross margin threshold, unlocking higher operating leverage.
• Clinical Evidence Tailwind: New ACE-PASS study results are prompting broader clinician adoption and changing prescribing patterns.
• Commercial Scale Momentum: Expanded sales coverage and rising in-network mix are driving durable growth and market share gains.

Performance Analysis

Kestra delivered a standout Q2, with revenue rising 53% year-over-year to $22.6 million, propelled by a 54% increase in Assure system prescriptions. This growth reflects both market share gains from existing accounts and activation of new prescribers, confirming the company’s ability to execute across commercial and operational levers. Notably, the business achieved a major milestone with gross margin expanding to 50.6%, up 11 percentage points from the prior year, driven by volume leverage, a higher in-network payer mix, and cost improvements per fit.

Kestra’s leased business model—where devices are rented to patients, enabling reuse and scalable unit economics—showed its strength as operating leverage improved. The company continued to invest in commercial expansion, including sales force growth from 80 to approximately 100 territories and the introduction of clinical specialists to deepen account penetration. Despite increased operating expenses tied to these investments and public company costs, the balance sheet remains fortified with $175.4 million in cash (excluding recent equity raise proceeds).

• Prescription Volume Resilience: Sustained >50% growth in prescriptions, with no one-time drivers, indicating robust underlying demand.
• Conversion Rate Progression: Conversion rates improved to 48.8%, up from 48.2% YoY and 44% in FY25, supported by payer contracting and RCM (revenue cycle management) gains.
• Operating Leverage Emergence: Sequential gross margin expansion for eight quarters, highlighting the business model’s scaling efficiency.

Management raised FY26 revenue guidance to $91 million, up from prior guidance of $88 million, reflecting confidence in both market expansion and internal execution. The company’s ability to drive both top-line growth and margin improvement positions it well for continued outperformance in a growing, underpenetrated market.

Executive Commentary

Strategic Positioning

1. Clinical Validation as a Growth Catalyst

ACE-PASS, FDA post-approval study, provided the largest real-world data set for wearable cardioverter defibrillators (WCDs), enrolling over 21,000 patients. The study confirmed Assure’s safety, efficacy, and superior wearability, with 94% of patients free from false alarms and the highest average wear time in any US WCD trial. This robust evidence is already influencing clinician behavior and could drive future updates to clinical guidelines, expanding the addressable market.

2. Commercial Expansion and Channel Penetration

Kestra’s sales force expansion to nearly 100 territories (from 70 at IPO) and targeted addition of clinical specialists are enabling deeper account penetration and new hospital wins. The company is focusing on geographies with high prescription density and strong payer coverage, maximizing the impact of each commercial dollar spent. Early returns from this model show increased productivity and account maintenance, freeing reps to open new accounts.

3. Payer Contracting and Revenue Cycle Optimization

The in-network patient mix has risen from 70% at IPO to the low 80s, unlocking higher revenue per fit and improved collections. Kestra’s ongoing effort to contract with over 3,000 US payers is reducing friction in the revenue cycle and contributing to conversion rate gains. Enhanced RCM capabilities are translating directly into higher fill rates and margin expansion.

4. Scalable Leased Asset Model

The company’s leased device model allows for up to 90% of annual patient fittings to be served with existing assets, minimizing capital intensity and supporting rapid scaling. As volumes increase, depreciation and maintenance costs are leveraged, driving steady margin improvement and reducing the need for incremental capital outlay.

5. Innovation Pipeline and Platform Differentiation

Kestra is investing in R&D across three platforms: WCD, wearable, and digital. While specifics remain undisclosed, management signaled that future product innovation will be guided by clinical data, targeting unmet needs and further differentiating the Assure system. This approach positions Kestra to address a broader range of cardiac conditions and maintain technology leadership.

Key Considerations

Kestra’s Q2 results reflect a business at the intersection of clinical validation, operational scale, and commercial agility. The following considerations frame the company’s strategic context:

Key Considerations:

• Clinical Data Impact: ACE-PASS results are prompting clinicians to reassess WCD utilization, with early signs of broader patient eligibility and increased prescription rates.
• Payer Coverage Traction: Rising in-network mix is driving higher revenue per patient and improving collections, with further upside as more payers are contracted.
• Sales Force Productivity: Expanded territories and clinical specialist support are increasing both account penetration and new account acquisition.
• Margin Expansion Visibility: The leased model enables sustained gross margin growth, with management targeting 70%+ over the next several years.
• Optionality from Capital Raise: Recent equity proceeds provide flexibility to accelerate growth initiatives or pursue strategic investments as clinical and market tailwinds build.

Risks

Guideline inertia remains a risk, as updates to WCD clinical recommendations can be slow and are not guaranteed despite compelling data. Competitive responses from entrenched players could pressure pricing or limit share gains, especially as both Kestra and its main rival now have large-scale clinical evidence. Payer contracting is an ongoing process, with more than 3,000 payers still to be addressed, and any delays here could slow conversion rate progress. Operating expense growth, if not matched by revenue acceleration, could pressure near-term profitability.

Forward Outlook

For Q3, Kestra management expects:

• Continued sequential growth in prescriptions and revenue, with some seasonality in Q3 volumes.
• Further gross margin expansion as in-network mix and volume leverage improve.

For full-year 2026, management raised guidance to:

• $91 million in revenue, up 52% YoY (prior: $88 million).

Management emphasized that the growth outlook does not depend on guideline changes, but rather on ongoing commercial execution, payer contracting, and market expansion. The capital raise enables accelerated investment in sales force and innovation if market signals remain strong.

• Prescription growth expected to remain >50% in the near term.
• Payer mix and RCM improvements to further boost margin structure.

Takeaways

Kestra’s Q2 demonstrated the power of a clinically validated, scalable business model in an underpenetrated market. The combination of gross margin expansion, accelerating prescription growth, and robust clinical evidence positions the company for continued outperformance as both a share gainer and market expander.

• Margin Inflection: Surpassing the 50% gross margin mark validates the rental model and sets the stage for further leverage as scale builds.
• Clinical Tailwind: ACE-PASS data is already influencing clinician behavior, with the potential to accelerate market expansion and guideline updates over time.
• Execution Watchpoint: Investors should monitor the pace of payer contracting, sales force productivity, and OPEX discipline as the company deploys new capital and scales commercial operations.

Conclusion

Kestra’s Q2 was a defining quarter, with operational and clinical milestones supporting a durable growth trajectory. The company’s disciplined execution, validated by both market and clinical signals, underpins a credible path to sustained margin expansion and market leadership in the WCD space.

Industry Read-Through

Kestra’s results highlight a broader trend in medtech where large-scale real-world evidence is shifting clinical practice and accelerating adoption curves. The rapid gross margin expansion seen here underscores the power of asset-light, rental-based business models in capital-intensive device markets. For competitors and adjacent device makers, the bar for clinical validation and payer integration is rising, and commercial agility is increasingly a differentiator. As guideline updates lag behind emerging data, companies able to drive prescriber education and payer contracting will capture outsized share in underpenetrated categories.

KMTS Healthcare Medical Devices Clinical Evidence Wearable Devices Gross Margin Payer Coverage Commercial Expansion