Kestra Medical Technologies Ltd(KMTS) - 2025 Q4 - Annual Report

PART I Item 1. Business Kestra Medical Technologies, Ltd. is a medical device company focused on cardiovascular disease, offering the ASSURE WCD - Kestra Medical Technologies, Ltd. completed its initial public offering (IPO) on March 7, 2025, and its Common Shares began trading on the Nasdaq Global Select Market on March 6, 2025[4][8][432] - The company's core product, the ASSURE WCD, received FDA approval in July 2021 and was fully commercially launched in August 2022, having been worn by over 20,000 patients since launch[25][29][54] Key Financial Highlights (Fiscal Year Ended April 30) | Metric | FY2025 (Millions) | FY2024 (Millions) | YoY Change (%) | | :----------------------- | :---------------- | :---------------- | :------------- | | Revenue | $59.8 | $27.8 | 115% | | Net Loss | $(113.8) | $(94.1) | 21% | | Gross Profit | $24.2 | $0.4 | NM | - The U.S. annual addressable market for WCD therapy is estimated at approximately $10 billion as of 2024, with an international market opportunity of approximately $14 billion, indicating significant underpenetration (only 14% of eligible U.S. patients in 2023)[30][36][43] - The ASSURE WCD differentiates itself from competitors by offering gender-specific garments, cushioned electrodes for improved ECG signal quality, four channels of high-quality ECG with Adaptive Patient Intelligence (API) to minimize false alarms (6% false alarm rate vs. 46% for competitor's device), and a higher energy shock (170 joules vs. 150 joules)[30][31][37] Overview This section provides an overview of Kestra Medical Technologies, Ltd. and its business operations Our Success Factors The company's success is driven by its innovative WCD technology, patient-centric design, and strategic market penetration Our Growth Strategies Kestra focuses on expanding market reach, enhancing product features, and optimizing reimbursement processes to drive future growth Market Overview This section describes the wearable cardioverter defibrillator market, including patient demographics and unmet needs WCD Therapy for Patients at Elevated Risk of SCA WCD therapy provides a critical bridge to permanent implantable defibrillators for patients at high risk of sudden cardiac arrest Limitations of the Legacy, Commercially Available WCD Existing WCD devices face limitations in patient comfort, false alarm rates, and overall user experience Our Solution Kestra's ASSURE WCD offers an advanced solution addressing the limitations of legacy devices through enhanced design and technology Treatment with the ASSURE WCD This section details the clinical application and patient experience with the ASSURE WCD Our Clinical Results and Studies Clinical data demonstrates the effectiveness and safety profile of the ASSURE WCD in preventing sudden cardiac arrest Sales and Marketing The company employs a targeted sales and marketing strategy to drive adoption among healthcare providers and patients Third Party Coverage, Reimbursement and Payor Relations Ensuring broad third-party coverage and favorable reimbursement policies is crucial for commercial success Research & Development Ongoing research and development efforts focus on product innovation and expanding the Cardiac Recovery System platform Manufacturing and Supply The company manages its manufacturing and supply chain to ensure product availability and quality Competition Kestra operates in a competitive market, facing established players and new entrants in the WCD and cardiovascular device space Intellectual Property The company protects its innovations through a portfolio of patents and other intellectual property rights Government Regulation Kestra's products are subject to extensive government regulation, including FDA approvals and compliance requirements Executive Officers of the Company This section lists the key executive officers responsible for the company's strategic direction and operations Team Members and Human Capital Resources The company's human capital strategy focuses on attracting, developing, and retaining a skilled workforce Corporate Information This section provides general corporate information about Kestra Medical Technologies, Ltd Item 1A. Risk Factors The company faces risks including limited operating history, net losses, product dependence, and operational, regulatory, and market challenges - The company has a limited operating history, having fully commercially launched its ASSURE WCD in August 2022, making it difficult to evaluate future success and viability[188] Net Losses and Accumulated Deficit (Fiscal Year Ended April 30) | Metric | FY2025 (Millions) | FY2024 (Millions) | | :----------------- | :---------------- | :---------------- | | Net Losses | $(113.8) | $(94.1) | | Accumulated Deficit| $(520.2) | $(406.4) | - The company is highly dependent on the lease of its ASSURE WCD for revenue, and its commercial success relies on healthcare providers, hospitals, and patients adopting its solutions, which can be hindered by competition and reluctance to change existing practices[195][198] - Material weaknesses in internal control over financial reporting have been identified, including insufficient accounting resources and control deficiencies over financial statement presentation and IT general controls, which are currently undergoing remediation[281][283][284][524][525][528][529] - Bain Capital beneficially owns approximately 52.6% of common shares and controls approximately 48.6% of voting power, giving it significant influence over corporate decisions, which may conflict with other shareholders' interests[384] Risks Related to Our Business The company faces business risks including limited operating history, reliance on a single product, and challenges in market adoption and reimbursement Risks Related to Our Intellectual Property The company's intellectual property is subject to risks such as infringement, challenges to validity, and the inability to protect proprietary rights Risks Related to Government Regulation Compliance with extensive and evolving government regulations, including FDA requirements, poses significant risks to the company's operations and product commercialization Risks Related to Ownership of Our Common Shares Ownership of common shares involves risks related to market volatility, lack of dividends, and the influence of significant shareholders General Risk Factors This section outlines general risks that could adversely affect the company's business, financial condition, and operating results Item 1B. Unresolved Staff Comments The company has no unresolved staff comments to report Item 1C. Cybersecurity Kestra maintains a robust cybersecurity risk management program aligned with NIST CSF and ISO 27001, overseen by the Audit Committee, with no material incidents reported - The company's cybersecurity risk management program is aligned with NIST Cybersecurity Framework (NIST CSF) and ISO 27001, covering data breaches, phishing, ransomware, insider threats, and third-party risks[415][416] - All Kestra team members receive mandatory quarterly security awareness training, including phishing tests, and annual HIPAA Covered Entity training[418][421] - The Audit Committee of the Board of Directors oversees the cybersecurity program, receiving regular briefings from the CIO, who has over 12 years of experience in information security[424][426] - As of the date of this Annual Report, the Company has not experienced any material cybersecurity incidents[422] Item 2. Properties Kestra Medical Technologies operates from leased facilities, including its Kirkland, WA headquarters and administrative offices, with plans for expansion - All company operations are conducted at leased facilities, including two in Kirkland, WA, and one in Dublin, Ireland[427][428] Leased Facilities Overview | Location | Size (sq ft) | Purpose | Lease Expiry | | :----------------------- | :----------- | :------------------------------------ | :----------- | | 3933 Lake Washington Blvd, Kirkland, WA | 16,700 | R&D, General Admin, Corporate HQ | April 30, 2029 | | 10210 Points Dr NE, Kirkland, WA | 18,500 | General Admin | April 30, 2029 | | 28 Fitzwilliam Place, Dublin 2, Ireland | 300 | General Admin | July 31, 2025 | Item 3. Legal Proceedings The company is occasionally involved in ordinary course legal proceedings, but does not anticipate material adverse effects on its financial position - The Company is from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business[429] - The Company does not expect any of its pending legal proceedings to have a material adverse effect on its results of operations, financial position or cash flows[429] Item 4. Mine Safety Disclosures This item is not applicable to the company PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Kestra Medical Technologies' common shares began trading on Nasdaq in March 2025 post-IPO, with no immediate dividend plans, and proceeds used for growth - Kestra Medical Technologies' common shares began trading on the Nasdaq Global Select Market under the symbol 'KMTS' on March 6, 2025[432] - As of July 16, 2025, there were 361 registered holders of record for the company's common shares[433] - The company has never declared or paid cash dividends and does not expect to do so in the foreseeable future, prioritizing reinvestment of earnings into business operations and growth[434][125] IPO Proceeds (March 2025) | Item | Amount (Millions) | | :--------------------------------- | :---------------- | | Shares Issued and Sold | 13,664,704 | | Public Offering Price per Share | $17.00 | | Gross Proceeds | $232.3 | | Underwriting Discounts & Commissions | $16.5 | | Net Proceeds | $215.8 | Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Kestra's financial performance, highlighting rapid revenue growth, continued net losses, and significantly boosted liquidity from its recent IPO - The company is a commercial-stage medical device and digital healthcare company focused on cardiovascular disease, with its Cardiac Recovery System platform centered around the ASSURE WCD[440] Financial Performance Summary (Fiscal Year Ended April 30) | Metric | FY2025 (Millions) | FY2024 (Millions) | YoY Change (%) | | :----------------- | :---------------- | :---------------- | :------------- | | Revenue | $59.8 | $27.8 | 115% | | Gross Profit | $24.2 | $0.4 | NM | | Net Loss | $(113.8) | $(94.1) | 21% | | Cash & Equivalents | $237.6 | $8.2 | 2797.6% | | Accumulated Deficit| $(520.2) | $(406.4) | 28% | - Revenue growth was primarily driven by an 88% increase in the number of patients using the product and a 15% increase in reimbursement realization due to additional payor contracts and enhanced collection efforts[462] - Gross profit significantly increased due to revenue growth and a 47% decrease in cost of revenues per patient, resulting from improved medical equipment utilization and manufacturing cost reduction programs[464] - The company's liquidity was significantly boosted by $215.8 million in net proceeds from its IPO in March 2025, which, along with existing cash and revenue, is expected to fund operations for at least the next 12 months[446][447][472] Overview This section provides an overview of the company's financial condition and results of operations Key Factors Affecting Our Results of Operations and Performance Key factors influencing financial results include patient adoption, reimbursement rates, and operational efficiency Key Components of Our Results of Operations This section details the primary components of revenue, cost of revenue, and operating expenses Results of Operations This section provides a detailed analysis of the company's financial performance for the reported periods Liquidity and Capital Resources The company's liquidity and capital resources are discussed, including cash position, debt, and funding strategies Off-Balance Sheet Arrangements This section discloses any off-balance sheet arrangements that could have a material effect on the company's financial condition Critical Accounting Policies and Significant Management Estimates This section outlines the critical accounting policies and significant management estimates used in financial reporting Emerging Growth Company and Smaller Reporting Company Status The company's status as an emerging growth and smaller reporting company impacts its regulatory compliance and disclosure requirements Recently Adopted and Issued Accounting Pronouncements This section details the impact of recently adopted and issued accounting pronouncements on the company's financial statements Item 7A. Quantitative and Qualitative Disclosures About Market Risk Kestra Medical Technologies faces market risks from interest rates, credit concentrations, and inflation, though current impacts are not significant - The company's exposure to interest rate risk from cash deposits and the Term Loan is not significant, with a hypothetical 10% change in rates having no material impact on financial statements[515][516] Cash, Cash Equivalents and Restricted Cash Balances (Fiscal Year Ended April 30) | Metric | FY2025 (Millions) | FY2024 (Millions) | | :----------------------------------- | :---------------- | :---------------- | | Cash, Cash Equivalents & Restricted Cash | $237.9 | $8.6 | | Uninsured Balances (Cayman Islands) | $0.3 | $0.3 | - The effects of inflation on the company's results of operations and financial condition have been immaterial to date, but future inflation could have an adverse impact[519] Item 8. Financial Statements and Supplementary Data The consolidated financial statements and supplementary data are filed as part of this Annual Report - The consolidated financial statements and notes are included in this Annual Report starting on page F-1[520] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure Item 9A. Controls and Procedures Management concluded disclosure controls were ineffective as of April 30, 2025, due to material weaknesses in internal control over financial reporting, with ongoing remediation - Management concluded that the company's disclosure controls and procedures were not effective as of April 30, 2025, due to material weaknesses in internal control over financial reporting[522] - Identified material weaknesses include an ineffective control environment (lack of sufficient accounting, finance, and IT resources), ineffective controls for non-routine/complex transactions, inadequate segregation of duties for manual journal entries, and deficiencies in IT general controls[524][525][526][528][529] - Remediation plans are ongoing and include hiring additional qualified personnel, engaging third parties for technical accounting and control design, and enhancing IT governance processes, with full remediation anticipated beyond fiscal year 2025[530][531][532] Item 9B. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during FY2025 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal year ended April 30, 2025[536] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There are no disclosures regarding foreign jurisdictions that prevent inspections PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2025 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders[539] - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees, and insider trading policies to ensure compliance with relevant laws and regulations[540][542] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the 2025 Proxy Statement - Information on executive compensation is incorporated by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders[543] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2025 Proxy Statement - Information on security ownership of certain beneficial owners and management is incorporated by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders[544] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2025 Proxy Statement - Information on certain relationships and related transactions, and director independence, is incorporated by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders[545] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2025 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the definitive Proxy Statement for the 2025 Annual Meeting of Shareholders[546] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and various exhibits filed as part of the Annual Report - The Annual Report includes financial statements, schedules, and a comprehensive list of exhibits[549][551] - Exhibits include corporate governance documents (Certificate of Incorporation, Bye-laws), financial agreements (Warrants, Credit Agreement), compensation plans (Omnibus Incentive Plan, Employment Agreements), and regulatory certifications (SOX 302/906)[553][555] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided Financial Statements Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on Kestra's consolidated financial statements, noting a history of negative operating cash flows and losses - PricewaterhouseCoopers LLP provided an unqualified opinion on the consolidated financial statements for FY225 and FY2024, affirming fair presentation in accordance with US GAAP[565] - The report highlights the company's history of negative operating cash flows and significant losses from operations since its inception[569] Consolidated Balance Sheets The consolidated balance sheets show a significant increase in total assets and a shift to positive shareholders' equity in FY2025, driven by the IPO Consolidated Balance Sheet Highlights (in thousands) | Metric | April 30, 2025 | April 30, 2024 | | :------------------------- | :------------- | :------------- | | Total Assets | $295,744 | $45,949 | | Cash and cash equivalents | $237,595 | $8,249 | | Total Liabilities | $90,338 | $78,216 | | Redeemable Preferred Stock | $0 | $177,110 | | Total Shareholders' Equity (Deficit) | $205,406 | $(209,377) | - Cash and cash equivalents increased significantly from $8.2 million in FY2024 to $237.6 million in FY2025, largely due to IPO proceeds[573] - Shareholders' equity transitioned from a deficit of $209.4 million in FY2024 to a positive $205.4 million in FY2025, reflecting the impact of the IPO and capital contributions[573] Consolidated Statements of Operations and Comprehensive Loss The consolidated statements show substantial revenue growth and improved gross profit in FY2025, but also increased operating expenses leading to a higher net loss Consolidated Statements of Operations Highlights (in thousands) | Metric | Year Ended April 30, 2025 | Year Ended April 30, 2024 | YoY Change (%) | | :--------------------------------------- | :------------------------ | :------------------------ | :------------- | | Revenue | $59,815 | $27,814 | 115% | | Cost of revenue | $35,605 | $27,452 | 30% | | Gross profit | $24,210 | $362 | NM | | Research and development | $15,652 | $15,490 | 1% | | Selling, general and administrative | $114,936 | $69,935 | 64% | | Total operating expenses | $130,588 | $85,425 | 53% | | Loss from operations | $(106,378) | $(85,063) | 25% | | Net loss and comprehensive loss | $(113,814) | $(94,120) | 21% | | Net loss per share (basic and diluted) | $(5.13) | $(5.07) | 1.2% | - Revenue increased by $32.0 million (115%) in FY2025, driven by increased patient usage and higher reimbursement realization[462][574] - Gross profit saw a substantial increase of $23.8 million, reaching $24.2 million in FY2025, primarily due to revenue growth and a 47% decrease in cost of revenues per patient[464][574] - Selling, general and administrative expenses increased by $45.0 million (64%) in FY2025, mainly due to higher personnel expenses and professional services related to the IPO[466][574] Consolidated Statements of Changes in Redeemable Preferred Stock and Shareholders' Equity (Deficit) The consolidated statements reflect a significant capital structure transformation, with preferred stock conversion and IPO proceeds boosting equity despite ongoing net losses - Redeemable preferred stock, which stood at $177.1 million in FY2024, was fully converted into Common Shares in connection with the IPO in FY2025[578][691] - The IPO resulted in the issuance of 13,664,704 common shares, contributing significantly to additional paid-in capital[579] - Total shareholders' equity shifted from a deficit of $(209.4) million in FY2024 to a positive $205.4 million in FY2025, primarily due to the IPO proceeds and capital contributions, despite a net loss of $(113.8) million in FY2025[578][580] - Share-based compensation expense recognized was $24.3 million in FY2025, a significant increase from $1.5 million in FY2024, partly due to the acceleration of vesting for Incentive Units during the IPO[579][699][706] Consolidated Statements of Cash Flows The consolidated statements show continued negative operating cash flow, offset by a surge in financing activities from IPO proceeds, leading to a substantial cash increase Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Year Ended April 30, 2025 | Year Ended April 30, 2024 | | :--------------------------------- | :------------------------ | :------------------------ | | Net cash used in operating activities | $(77,608) | $(72,235) | | Net cash used in investing activities | $(23,308) | $(12,229) | | Net cash provided by financing activities | $330,262 | $77,725 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $229,346 | $(6,739) | | Cash, cash equivalents and restricted cash (End of period) | $237,929 | $8,583 | - Cash used in operating activities increased by $5.4 million (7.4%) in FY2025, primarily due to the net loss and changes in operating assets and liabilities[485] - Cash provided by financing activities dramatically increased by $252.5 million (324.9%) in FY2025, driven by $215.8 million in IPO proceeds and $103.4 million from redeemable preferred stock issuances[489] - Purchases of property and equipment, including medical rental equipment, increased from $12.2 million in FY2024 to $22.9 million in FY2025[487][488] Notes to Consolidated Financial Statements The notes detail the company's formation, IPO, significant accounting policies, debt, fair value, income taxes, and emerging growth company status - Kestra Medical Technologies, Ltd. was formed in Bermuda in May 2021 for its IPO, which completed on March 7, 2025, leading to organizational transactions where pre-existing interests were exchanged into Common Shares[589][592][593][594] - The company changed the estimated useful life of medical rental equipment (therapy cables from 2 to 8 years, batteries from 2 to 6 years) prospectively in FY2025, reducing depreciation expense by $1.4 million[614][615] - The company accounts for revenue from ASSURE WCD leases as operating leases, recognizing revenue on a straight-line basis over the one-month non-cancellable lease term when collectability is probable[630][631] - As of April 30, 2025, the company had $45.0 million outstanding under the Term Loan 2024, which bears interest at Term SOFR plus 7.25% and includes financial covenants[679] Deferred Tax Assets and Liabilities (in thousands) | Metric | April 30, 2025 | April 30, 2024 | | :------------------------- | :------------- | :------------- | | Total Deferred Tax Assets | $110,698 | $83,625 | | Valuation Allowance | $(103,815) | $(79,028) | | Net Deferred Tax Assets | $6,883 | $4,597 | | Total Deferred Tax Liabilities | $(7,023) | $(4,673) | - The company has applied a full valuation allowance against its net deferred tax assets due to the unlikelihood of realizing the benefits of these deductible differences, given its history of net losses[712][716] 1. The Company This note describes the company's formation, business, and recent initial public offering 2. Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the consolidated financial statements 3. Prepaid Expenses and Other Current Assets This note provides details on the composition of prepaid expenses and other current assets 4. Property and Equipment This note details the company's property and equipment, including depreciation policies and changes in useful lives 5. Leases This note describes the company's lease arrangements, including operating lease liabilities and right-of-use assets 6. Accrued Liabilities This note provides a breakdown of the company's accrued liabilities 7. Long-Term Debt This note details the company's long-term debt obligations, including terms, interest rates, and covenants 8. Fair Value Measurement This note explains the methodologies and inputs used for fair value measurements of financial instruments 9. Common Shares This note provides information on the company's common shares, including authorized and issued amounts 10. Redeemable Preferred Stock This note details the redeemable preferred stock, including its conversion to common shares during the IPO 11. Non-Controlling Interest This note describes the non-controlling interest in the company's consolidated financial statements 12. Equity Incentive Plan This note outlines the company's equity incentive plan, including stock options and share-based compensation 13. Income Taxes This note provides information on income tax provisions, deferred tax assets and liabilities, and valuation allowances 14. Commitments and Contingencies This note discloses the company's commitments and contingencies, including legal proceedings and contractual obligations 15. Defined Contribution Plan This note describes the company's defined contribution retirement plan for eligible employees 16. Net Loss Per Share Attributable to Common Shareholders This note details the calculation of basic and diluted net loss per share attributable to common shareholders