I'm Travis Steed, the Medical Device Analyst at Bank of America. Next up, we have Kestra Medical Technologies, Brian Webster, President and CEO, and Vaseem Mahboob, make sure I said that right, Chief Financial Officer. You know, first of all, this is a newly public, I think, most recent IPO in med tech. One of your first kind of post-IPO conferences. Thank you for joining us. Yeah, happy to be here. Thank you for the invitation. Great to see everybody. Maybe just to open up, since, you know, maybe not everybody's familiar with you guys, just maybe talk about your market, kind of where you fit in the intersection between medical devices and digital healthcare. Yeah, I'd love to. Kestra is about a 10-year-old company that we've been commercial since about mid-year in 2022, kind of our full commercial launch. Our first product is a Wearable Cardioverter Defibrillator, or WCD. The WCD, the purpose of that technology is as a temporary protection for patients who are at elevated risk of cardiac arrest. These are typically patients who maybe have suffered a myocardial infarction or a heart attack and are in a waiting period before they can get their ICD. The big and growing part of the market is heart failure patients, so non-ischemic cardiomyopathy. They've been newly diagnosed. They're going to be put on guidelines drug treatment. Over a period of time, the drugs remodel their heart, but they too need help during that time to protect them while they're at risk. The at-risk is generally a diagnosis of ejection fraction below 35%, 35% or below. Ejection fraction is a measurement of cardiac output. We have been got our PMA approved in late 2021, started the commercial launch in 2022. We've been busy building up the infrastructure of the company over the last couple of years. We exercise a rental model. The patient physician will prescribe the device, usually a cardiologist or electrophysiologist. We come in, we fit the patient, usually in the hospital or clinic setting, and train the patient. That usually takes an hour, hour and a half, something like that. The patient then goes home, and they get discharged from the hospital. They go home, they wear our device. We have a big digital platform around our product that then we monitor the patient 24 / 7. They wear it typically for about three months. At the end of the three-month period, the device comes back to us, we recondition it, and then we put it back out into the fleet. That is kind of the way we turn the business model. We have built up our asset fleet of devices. We have been busily working on payer contracting and getting insurance coverage, and then started to build out our commercial footprint. As Travis mentioned, just about two months ago, went public. We are excited to be in the public markets and continuing to ramp the business up. I think our product is fantastic. We have really clear product differentiation in just about every feature that is important in a wearable defibrillator. We are taking advantage of that now. Really great period of time for Kestra. Maybe just touch on how big you think the market is and the situation today, and then the kind of growth outlook. Yeah, so that diagnosis that I mentioned of 35 or below ejection fraction, there's about 850,000 patients a year that are diagnosed with that in the U.S., another 1.4 million outside the U.S. That 850,000 is about a $10 billion TAM in the U.S., so really significant number. Last year, between us and our competitor, we came into a monopoly. ZOLL Medical was the company that had a monopoly position in this for about 20 years. Between the two of us last year, we did about 120,000 patients. It's still very under-penetrated and lots of opportunity to grow that market. How are you thinking about the IPO proceeds? Now that you just did the IPO, is there a way to kind of accelerate kind of the business plan going forward? Yeah, we did expand the offering based on the demand we saw. And so, you know, I think at this point, we're sticking to our plan of expanding our sales force. It's a service-level business. Usually, at the point in time we get a prescription, that physician is trying to get the patient discharged from the hospital. We have to be able to get the product to the patient, get them trained and fit with the product, generally within about 24 hours. For us, it's not about just adding salespeople. It's also about adding that capacity to meet that service level. We're going to continue to expand per our plan. We will continue to invest in that CapEx pool of assets that we're going to turn. I think in general, having a little bit more proceeds in the bank when we've got a volatile market is not a bad idea anyway. We'll kind of keep, you know, we'll keep reevaluating that as we get down the road a little bit. When you think about the growth from here, how much of this do you think can come from market share gains versus market expansion? Are you kind of pushing on kind of both levers at the same time? How are you titrating those two pieces? Yeah, I think one of the things I'm really most excited about in the business as we sit here today is we are really starting to push into the market development side of it. The obvious opportunity for us when we came on the market, we came into a billion-dollar monopoly. The obvious opportunity is go in, take their share, right? Just take as much of that as you can. That certainly is part of our strategy. We're seeing the opportunities with our product to actually grow the market. We're doing all kinds of what I would call classic med tech market development things, speakers bureaus, and APP programs, and teach-ins, and things like that that we're really targeting to expand the market. When you just brought in a new Chief Commercial Officer, what's going on with that new hire and kind of some of the initial things he's putting into place? Yeah, we brought in Al Ford, who is a, he was formerly the Chief Commercial Officer at Exonics, which many of you may know. I've actually known Al for about 25 years or something. We used to compete against each other in the AED space. We're happy to finally have an opportunity to work together. He's been here for about two months. He's spent most of his time out in the field. Like many good leaders, he understands that he really needs to understand that point of sale and what's going on with the customer. He's been out riding with reps, getting to know our team, getting to know his leadership team. Now we're just starting up a new fiscal year. He's excited to kind of launch our new plan for this year. I think he's evaluating different questions like what's the right mix between sales and clinical resources in the field, and at what time do you evaluate that in any given account. Yeah, he's excited. I think every time I see him, he says, "I can't believe I'm here. I'm so excited to be here." He's going to be great for the team. I think he's, you know, he is very complimentary of the team that we have in place already. He's, you know, as we grow it, we'll continue to turn that into a terrific team. I think he was pleasantly surprised by the quality of the leadership team and the sales team. When you think about growing the sales team, just maybe level set where you're at today in terms of reps, the plan to grow that, and talk a little bit about kind of the maturity of the reps, how long it takes to get up to maturity and the path there. Yeah, so we just finished our fiscal year. We're on a May 1st through April 30th fiscal year. We just finished in April. 12 months ago, at the end of our fiscal year, we had about 48 sales territories. I think we disclosed in the IPO that a couple of months ago, we had added, got that up to about 70 sales territories with a plan to get to about 80 by the end of April. We got to that number. That's a pretty significant uptick from 48 - 80 in one year. Our plan, again, as we talked about before, is to, over the next couple of years, kind of double that number again. We're going to continue to, I think of it as grow in an accelerated but responsible way so that we don't miss out on the service level requirements of the business. Yeah, that's one question I always get is like, why not go faster, add more reps? I guess the answer is the service level. Can you help us understand where the, how fast you can kind of push the sales force without impacting service levels and why there's like a service level component to this market? Yeah, and I didn't get to the second part of your question, Travis, about how long does it take them to ramp up. We sort of think of that as about a six-month process before they get up to full productivity. As we're thinking about expanding the team, we're kind of putting that into the calculus. I think we'll continue to evaluate the speed at which we go. One of the other important things about the way we think about sales force expansion is we don't want to put reps in territories that don't have insurance coverage. What we look for is the intersection between a sales territory that has a history of WCD prescriptions and a sales territory that has good insurance coverage. If we've got a contract with the predominant insurance providers in that territory and it's a big territory, then we want to put a rep there. The market access insurance stuff has to sort of be the leading edge of how quickly we go with the sales team expansion. Where do things stand on the insurance coverage perspective? When you look at the covered lives, which is a common metric I think that med tech companies use, we're something like 285 million covered lives in the U.S. So we're upwards in that sort of 90% kind of range. But in any given territory, that might not be the case. You may have territories where there's a regional payer that plays a big role in that territory. And so that's where we still are being really thoughtful about that. I guess you had a big one with Kaiser recently. Yeah, yeah, they're a very interesting account. They were kind of the last of the big accounts that we had to land. We got them over the finish line a couple of months ago. We've been seeing some really good progress there. That's exciting. They're a nice account because they are a closed network. At the point in time you get a prescription, it goes really quickly because you don't have all the prior auth, and the medical documentation is very clean and clear. It's a really nice account. We're going to continue to grow there. How is this going to impact kind of the conversion rate when you think about the revenue cycle management and stuff like that? Maybe you can kind of talk about even how that works high level and then kind of the path to improving, kind of closing the gap there. Sure. The conversion rate, as we have talked about previously, there are really three components to that conversion rate. The first component is the fill rate, which is really the ability to take a prescription and convert it into a fitting. The second one is then to convert that fitting into a claim. As Brian mentioned in the rental model, you have to submit a claim after proof of usage every month to the payers. There is also the third component, which is once you submit the claim, what percentage of the claims convert to cash, but more importantly, the timing of the cash that creates a timing delta between when you receive the cash to when you recognize revenue. Those are the three key components. I think as we have said in the past, the biggest driver for the conversion rate improvements in the P&L are going to come from migrating patients from being out of network to being in network. Because we know and have a lot of history that when you're in network, the ability to process that claim is easier. The burden of submitting the claims and collecting that cash is easier. The velocity of the cash from a timing perspective is shorter because you have a contracted time on when you receive the cash. We continue to make that progress on the conversion from out of network. As Brian said, being very deliberate and being very intentional on where you place the reps will continue to narrow that gap. Lastly, there is a little bit of a seasonality. We have said that Q1 to Q2, you'll see kind of an increasing or a sequential improvement in the conversion rate. Q3, because of the insurance deductibles that reset in January, it takes a dip. It is relatively flat to the third quarter to the fourth quarter. At the same time, I think the reality is to truly look at the conversion rate for the business, you have to look at it on an annual basis because there's obviously this timing and the seasonality. I think we feel very comfortable that with what we have put out there are very achievable numbers. When you think about the rep coverage and stuff like that, when you have pretty good visibility on where the prescriptions are happening, how much of the market do you think you have covered at this point? Just kind of thinking about your kind of pie at this point that you can kind of go after. I think the actual geographic market, we have less than 50% covered today. What will happen is in some of those geographies that we would say we have people in or a person in, we're going to go deeper. We're going to end up with two, three, four people in those because the opportunity is so big there. Yeah, and part of our strategy, of course, over the next couple of years is really to close that gap so that we've got coverage in the majority of the country. What are you seeing when you get a doctor on board in terms of their prescription volume? Are they mostly going towards you? Are they splitting share between you and ZOLL? Yeah, I would say the typical scenario is once you get a physician or a prescriber to try us out, they'll try us out for 3 or 4-5 fittings. If everything goes well, if the patient feedback is good, if our service level requirements are good, then they'll convert over to us. We're not generally seeing doctors say, "Hey, I'm going to split the business 50:50 between you and Zoll." They kind of understand the products better. Once they get comfortable that we can deliver on it, they kind of move over. You have to just move to the next physician, the next prescriber. Yeah. What about, are you able to see, maybe it's too early, but kind of see like once you get a doctor on board, how their volume is changing? Are they growing their total prescriptions? We certainly have some really exciting examples of that where we have good data from what the prescription rates were in the last couple of years. Now they move over to Kestra and we see that data is 120% of what it was last year. We get that data down at the account level so we can see it happening. There's some evidence that the market's expanding here. Yeah, for sure. Maybe to ask on, there was a competitor or potential competitor that just got FDA approval, Element. Just wanted to kind of touch base on that. Are you seeing them in the market at all or any chatter yet post-approval? Yeah, so the company is Element Science. They just got their PMA approved within the last couple of weeks, I guess. They have been trying to get that product approved. It's an adhesive-based product whereas ours is a wearable that you take on and off. They opted to go a route where they have a large adhesive-based set of electronics that you wear here and then you have another electrode up here. I would say it's good news for the category because it's one more company marketing the category, which is always good in med tech. I think that when they started out to try and the problem they were trying to solve when they started that business was the false alarm problem and the wearability problems that ZOLL had. I think they've come up with a product that is just a little bit marginally better clinically than the current ZOLL product. We have already moved the goalposts. It is not clinically even close to our product. I think ironically, they are trying to solve this patient compliance issue for WCDs. If you actually look at their clinical study, they had something like 36% of the patients exited the study early. They had over 40% of the patients had noted some kind of skin abrasion and skin problem. They are going to have some challenges with it. We respect competitors and we are going to compete. I think having three people, three companies in the mix is just fine. We will go grow the market. Any response from ZOLL that you've seen? In terms of to Element, you mean or just in general? It's a general, yeah. Any changes in how they're approaching the market? They're trying to do some, I would say, some iterative things to their product. They tried to do an algorithm update to improve their false alarm a little bit. They've done a couple of very modest updates to their garment. They're trying to, we've definitely seen them pick up the pace on marketing, talking about their product and things like that. We haven't seen any real significant technical updates or anything. It's a good sign that the marketing is actually going to actually help you in the whole market. Yeah, yeah. I think the more people are talking about the category, the better, right? Right. We have seen, maybe talk about gross margins. I think we are modeling 44% this year versus 14% a year ago. What is kind of the path to get gross margin expansion here and kind of the visibility and the potential to see maybe even some upside to the gross margin going forward? Yeah, so I think we made some tremendous progress on gross margin as you guys have seen. I think one of the feedback we get is that you did exactly what you said you were going to do. I think when you think about gross margin for Kestra, there's really two components to it. I think they're very two distinct work streams. The first one is really when you think about the concept of the conversion rate and having out of network patients convert to in network because we know when we are in network, we collect and we collect faster, as I said earlier. That's really going to drive the revenue per fit line, which is going to be pure price and it falls straight down to margin. As we saw the uptick or the inflection point on the payer coverage, we started to see that better realization of revenue per fit that translated into good margins. That was kind of the break-even point in the third quarter of 2023. On the other piece of it, which is really the cost side, I think we've already executed on all of the big cost improvement programs. There are no new programs to drive. It's just purely driving volume through the P&L. Again, the beauty of the rental model is that you can really leverage the investment in our CapEx over multiple cycles, multiple months of revenue. That is going to continue to drive the gross margin leverage. We have good line of sight to the 70% gross margins that we put out there in terms of the long-term view. That also kind of helps us kind of get to that pathway to profitability as we choose to. We feel really confident on where we are going with gross margins. Have you given a revenue, like when you kind of want to hit break-even and not margins? Yeah, so we haven't really specifically talked about the one thing that we do talk about is that at about a $250 million revenue number, this business can generate 25% EBITDA margins. I mean, it's not in the future distant thing. I mean, it's going to happen in the next few years. Right, right. That's helpful. Just maybe to remind people, it's kind of the economics on the rental, like the incremental margin. You can kind of walk through that because that, I think, gives a lot of confidence in the total company gross margin. No, that's a great one. I mean, when you think about the rental model, the investment in the CapEx for each unit, over a 10-year period, we can generate about $300,000 of revenue and on a cash basis, about 80%-82% margins. The economics are pretty staggering in this business because really the acquisition cost of the electronics plus some of the direct costs that you have to incur over that 10-year period really create that volume leverage. One of the data points for you guys is last year we purchased 3,000 units. This year we're only going to purchase 600 units. 95% of that new volume is going to come from reprocessed, reconditioned unit. The cost of that is just a fractional piece of that acquisition cost. The economics on the unit economics for Kestra are very sound. I think it goes back to the point that if you really believe that the market exists, which we strongly believe in, we have a good predicate from ZOLL, too, you can really drive the sales team and the expansion of the sales team to drive the volume. You're going to realize those economics on the margin. It is just going to happen automatically. Where's the fleet at today and kind of what kind of revenue size can you support? Yeah, so the last number we shared was that we had 6,000 units that supports just about $100 million of revenue. We'll continue to invest, as Brian mentioned, in the CapEx line because really that's going to be the leading edge of driving the Salesforce expansion because you got to have that bar level of inventory, make sure that we can meet the service level that Brian was talking about. I should have probably asked this a little earlier, but I know you just had your Q1 earnings call recently. It kind of was like we already kind of knew the numbers at this point, but I don't know if there was anything that you kind of wanted to say post that earnings call and this business kind of tracking as you expected along the way. Yeah, I think we're executing our plan. Obviously, we've finished our year and we won't be talking about results until our July call. We've been really, really consistent in sticking to our plan and just executing it. I'm really proud of the team. There's a lot of distractions involved with the IPO process and everything. I'm really proud of the work the team's done to just kind of stay on point. Anything on the pipeline that you think we'll see at any point in time or how are you thinking about the pipeline for the company? Yeah, we're not at a point where we're ready to talk for competitive reasons about in too much detail. I will say that we continue to invest in, there's one piece of the investment in the pipeline, which is developing some of the underlying technologies that are necessary for next gen. We also, as you know, Travis, designed our product with three distinct platforms in mind. We have a digital platform. We have a wearable platform. Sorry, we have the actual WCD platform. We are executing programs in each of those areas with the idea that we're going to continue to bring some exciting innovation to the table. Innovation is a big word at Kestra. I think last time I saw, we had something like 370 patent assets in our, which is more people than we have in the company. We're very focused on continuing to bring new innovation to the market. I think that was all the questions I had. I don't know if there's anything else that you've had today in meetings that would be important to talk about. Yeah, I think the theme of the discussions today have been not unlike where you've gone, which is what's the scaling of the sales team going to look like and at what pace do you do that? I just would say that we're going to continue to evaluate that as we go. We've got, I think, a good plan to be pretty aggressive about that. Keeping in mind that we make a commitment to the prescribers and we make a commitment to those patients that we're going to do the right thing by them. We are going to do it at a responsible pace and still be able to deliver what we think is really fantastic financial results. That's great. Look forward to seeing those results unfold. Sounds great. Thanks for coming. Thank you very much.