AOTI, Inc. ($AOTI)

Good afternoon, ladies and gentlemen, and welcome to the AOTI, Inc. results presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I'd now like to hand over to the management team, Mike, Jayesh, good afternoon.

Good afternoon, Anthony. Welcome, everybody, and we're going to walk through our results presentation. You've got myself here, Mike Griffiths, CEO; and our CFO, Jayesh Pankhania here. A little summary of who we are. We're a company focused on both saving limbs and indirectly saving the lives of patients by healing their chronic wound more durably. And our overall mission is to really help people with chronic disease get back to living in their lives through this. We're a strong value-driven company, and we're able -- our market is defined by our leading unique topical wound oxygen therapy, which is proven to heal hard-to-heal wounds more effectively. The investment capability is strong and compelling. The hard-to-heal wound market is significant. I'll give you some ideas of the [indiscernible] in a little bit. We have an established product with a very strong clinical evidence. It's demonstrated better healing with lower recurrence. So there's significant clinical but also cost savings for payers. The company had organic growth in '25 of over $66 million and positive cash flow and EBITDA. We've a clear business model for expansion and significant future growth as broader coverage comes down the pike. And as I said, we are profitable and cash-generative business already. The products that we have is called TWO2. It's a unique multi-modality therapy that allows us to combine oxygen with noncontact compression and humidification. And this allows us to heal these very difficult wounds at a much higher efficacy, 6x more likely to heal at 12 weeks, but probably more importantly, in a way that we produce stronger tissue and they stay healed over 12 months. This then results in significant reductions in hospitalizations and amputations, which obviously has the added benefit of reducing cost of care for these patients as well as obviously improving their quality and quantity of life. From a business point of view, our fundamentals are very strong, and we believe the business is well positioned for long-term sustainable growth. Our mainstay product is our TWO2 therapy, which is differentiated and clinically proven and is also cost effective and cost saving. We saw in '25 good revenue growth despite significant health care headwinds in the U.S., and this was substantially greater growth in the advanced wound care device market as a whole. And we continue to evolve and invest in our business model and strategy. So we are increasingly well positioned to reaccelerate growth as these U.S. headwinds start to abate and also as broader coverage comes into play. Regarding broader coverage, which is driven by CMS Medicare coverage determination, this will be transformational for the company over time as it will open up significant new market segments. And as a company, because we are not just a manufacturer, we're actually a provider that delivers care to the patients at home. We are establishing an outcome-based at-home category within the advanced wound care market based around our platform. And this creates additional strategic advantages and very meaningful barriers to entry for competitors. We've made significant operational progress in the last year and implemented a number of organizational changes allowing us to have greater focus on delivering patient outcomes and improving sales rep productivity, and we're seeing positive signs for a number of changes we made last year. We continue to move and progress our market access and getting provider IDs, which is the ticket to play in Medicaid, which is the insurance in the U.S. for people with low levels of income. And we now have 19 states additional to our ability to service Medicare nationwide. And we see continuous array of payer endorsements demonstrating and validating what we expect to be from a CMS local coverage determination in the near term. These include achieving provider IDs in California, but also independent health technology assessments and result of commercial payer insurance coverage for our therapy by Cigna, one of the large insurers in the U.S. In Germany, we've seen national treatment recommendation from the German regulatory agency, G-BA. And likewise, in the U.K., the National Institute of Clinical Excellence last year published a fast track treatment recommendation based on the quality of evidence, and we're now beginning to start servicing the NHS through the supply schedule. Last but not least, we're seeing good progress rolling out our Eyes-on-the-Wound engagement platform, which we'll talk about a little bit later. Now I'm going to pass you over to Jayesh to talk through some of the financial highlights.

Thanks, Mike. So how did we do last year? We had good revenue growth despite U.S. health care market disruption. Our revenue growth was 14% to $66.5 million. And within that, Arizona contributed around $9 million. So on an underlying basis outside of Arizona, the business grew 15%. And Mike will explain later on the situation in Arizona. From a profit perspective, adjusted EBITDA decreased slightly to $7.5 million. That was driven by an increase in investments in the commercial team and market access, which will drive future growth, but also in the noncash CECL provision, which increased as a result of the Arizona situation. Adjusted EBITDA margin was 11.3% and profit before tax was $3 million compared to a loss last year of $0.9 million. In terms of working capital, our receivables increased to a total of $21.8 million, largely as a result of payment delays by Arizona insurers. And as previously mentioned in our trading update, the business will cease taking on new patients from the 1st of April in Arizona. That will limit our debtor buildup going forward, reduce our working capital needs and will support our positive operating cash flow. Our inventory also increased due to commitments made in anticipation of growth in the early part of last year, and we expect that to normalize in FY '26. From a net debt perspective, our net debt was $6.5 million compared to net cash of $0.9 million at the end of last year. Compared to the half year, though, our net debt at the half year was $5.4 million, indicating a better half 2 cash performance. Since the end of last year, we drew an additional $11 million loan with SWK, bringing the total loan balance now to $19.5 million. And that additional drawdown came with a reduced interest charge and longer amortization, which strengthens our balance sheet and ensures the business can navigate the unprecedented changes across the U.S. health care landscape at the moment. What do we think for 2026? So we think 2026 is going to be a transitional year. We'll still have ongoing challenges from the One Big Beautiful Bill and as we embed our revitalized sales structure to drive productivity and leverage market growth. We expect revenue growth for FY '26 to be in the low single digits. But if you take out Arizona, we expect the underlying growth to be in the mid-teens. Adjusted EBITDA is expected to be in the high single digits. I'll pass back on to Mike for the business overview.

Thanks, Jayesh. So we wanted to articulate more accurately the opportunity size that we have today based on our current reimbursement structure in predominantly the Veterans Administration across the United States and in New York State Medicaid. We've done a bottom-up build from the U.S. -- 2024 U.S. claims data, looking at hard-to-heal wounds of the lower extremity just in those 2 sectors. And by doing that, we estimate that the obtainable market today is about $400 million with about $66.5 million of revenue to today, we have about 16% penetration. So plenty of upside for us to continue to expand and go deeper into these sectors as we work on broader coverage. When broader Medicare coverage is established and when it flushes down the system and opens up all of the payer pathways that it influences, we estimate that, that will drive a serviceable market of about $26 billion, so a 65-fold increase. So when we talk about CMS coverage being transformational for the business, you can see it magnifies the business opportunity 65-fold. Now we've been executing over the last few years in different phases. The first phase was focused on the Veterans Administration nationwide and New York State Medicaid, we have coverage in place. The phase we're working at the moment has been working into other state Medicaids and getting provider IDs that we're able to service various sectors of those payer pathways and establishing the precedents needed for them when we receive broader coverage from CMS so we can take advantage of the maximum $26 billion opportunity. We had some good progress over this year also in the private sector where Cigna, one of the big insurers, as I mentioned earlier, pass coverage criteria for our therapy and cover as a covered service already. As Jayesh mentioned, in Arizona, we've had very good success in driving adoption and adherence to our therapy and been able to move prescribers along wanting to utilize. However, in the last year, we've had certain restrictions with regards to payments from insurers. And this has been driven largely by what's been really a perfect storm of issues in Arizona in addition to the pressures created and the upheaval created by the Big Beautiful Bill. And you can see here there are a number of different things that have affected the state. Consequentially, so that we limit our exposure, we have no choice, even though we're having good intensified efforts with the state towards a resolution, but we have no choice to decide to cease enrolling and treating new patients from April forward until we get a resolution from the state relative to the payment issues. However, we are confident in collecting historical debt due to the process that we've taken. With some of the organizational changes we mentioned earlier, we've taken our sales force and we're utilizing what was predominantly VA sales force with certain areas where we have dedicated reps also for Medicaid and made more geography and territory base. And if you look at where we have headcount, we have either headcount or infrastructure that encompasses about 26 U.S. states, which involves about 86% of the U.S. population. And we're driving these reps to take advantage of all pathways for business in addition to VA in those states today. But clearly, then once we get broader Medicare coverage, these reps can then take advantage of that broader coverage with the same prescribers they're working with today. And we believe we'll be able to hit the ground running without significant capital needs. And as we're doing this, we're working very aggressively to drive the rep performance and the outcomes that we get from them. So something that's very unique is, as I said earlier, we're not just a manufacturer, but we're also a provider here. And what we're doing is we're building a new outcome-based home care category, which really resonates with the administration in the U.S. move away from fee-for-service that could be prone to such fraud and abuse towards more of an outcome-based care. We are already the market leader in the topical oxygen space, I think over 75% of the topical oxygen segment, the advanced wound care market. And our outcome-based platform is really based on 3 pillars: our unique differentiated therapy that allows us significantly better clinical and long-term outcomes; the fact that we are an accredited home care provider and have direct patient access and own the channel all the way to the patient at home; and then last but not least, an evolution of our Eyes-on-the-Wound platform, which is patient data analytics and engagement platform that allows us to deliver more effective care and enhances engagement with patients, caregivers, prescribers, but very importantly, with payers so we can demonstrate and deliver these outcomes to the payers on an ongoing basis. So as we said, CMS coverage is something that will be transformative for the business -- transformational for the business because it opens up a market opportunity 65-fold from where we have today. We believe that a local coverage determination is expected in the near term, and it unlocks not only Medicare and Medicare is the over 65 population, which has the highest prevalence of chronic disease, but also accelerates access to Medicaid, which is the people of low-income insurance and other payer channels as well. We will -- then once we receive coverage and it flushes through the system, we will be able to leverage our existing commercial infrastructure, which will support without additional investment, the ability to hit the ground running and to drive patient access. And we're confident of a positive decision based on the repeat and ongoing clinical and economic valuations that we've achieved over the last year in both the U.S., Germany and the U.K., where we've had positive recommendation based on similar grade-based assessment of the evidence as CMS will do. Additionally, we have very strong advocacy support from both patient groups like the American Diabetes Association and clinical groups like the Wound Healing Society in the U.S., which help bolster support for coverage of the therapy. So to summarize, our fundamentals of our business are strong, and we are positioned very well for sustainable growth. We have a unique differentiated product that shows both clinical -- long-term clinical benefits, but also health economic and cost savings. We generated a good revenue growth in 2025 despite unprecedented headwinds and growth substantially better than the advanced wound care device as a whole. We keep -- we continued to invest in developing our long-term business strategy, and we're increasingly well positioned to accelerate growth as these headwinds start to abate and turn into tailwinds, but also as we get broader coverage. We believe CMS Medicare coverage determination will be forthcoming in the near term. And as we have pointed out, this will be transformational because it will untap the much greater market potential for our therapy in the U.S. Last but not least, we are building an outcome-based at home category within advanced wound care that creates significant barriers to entry to others and strategic advantage, which later on can be expanded to include broader chronic care management of these patients at home as many of these patients, as you know, have multiple comorbidities. I think with that then, we'll pass it back and we'll look to see if we have any question and answers.

That's great. Mike, Jayesh, thank you very much indeed for updating investors. [Operator Instructions] I'd just like to remind you a recording will be available shortly after today's presentation. Mike, Jayesh, we've received a number of questions from investors this afternoon. Thank you to everybody for your engagement. Perhaps, Mike, if I may, just ask you to moderate through the Q&A. I read out the questions and give a response where it's appropriate to do so, and I'll pick up from you at the end.

So one question was why did we stop -- not stop Arizona sales earlier in order to avoid the buildup of receivables? This is a very good question. We have been working with Arizona state Medicaid to resolve the payment issues. We had very good payment terms with insurers up for 1.5 years prior to this. But we take very responsibly managing and treating these patients. And we do believe we meet coverage criteria and medical necessity requirements that these payments will be made and will be made over time even if we don't come with clear coverage policy with the state. So we believe it was the right thing to do to continue treating patients. And as of the last year, we just -- it just built to a point now that we feel in order to limit continuing receivables and the pressure on our working capital that we need now to take this stance and hopefully, the state will move forward with coverage in the near future. What -- another question here. What gives you confidence in achieving CMS approval -- CMS coverage? What gives us confidence is the body of evidence and the quality of the clinical trials and various other health technology assessments in both the U.S., including ECRI and the coverage by Cigna, the big commercial insurer and in the U.K. with NICE, National Institute of Clinical Excellence, and G-BA, the German body that have all looked at the evidence and come to consistent coverage decisions based on assessing the quality of it, which is the process that CMS are mandated to do by law. Okay. Could your data platform evolve into a stand-alone value driver? I think definitely over time. So we see our platform that allows us to engage with the patients and caregivers, but also to capture information and generate automated reports back for prescribers. And that then can be evolved then to payers where we can demonstrate that we actually deliver the outcomes in the real world. And a lot of this is being driven by an AI backbone. So we see our focus today to use it as a value-driving platform for our therapy to deliver outcomes, but it could certainly be expanded to do more chronic care management in the future. So yes, we do think so.

Should I take that one on cash flow?

Yes.

So the question is, can you give a monthly picture of your budgeted cash flow over the next 12 months and be clear on the minimum debt headroom you expect to have over the year? So we don't provide monthly cash flow data. But what I can tell you is that we've got sufficient headroom for the next 12 months in a number of scenarios, even in the downside scenario, which we had to go through as part of our going concern assessment for the audit and which the auditors have signed off on. So in a nutshell, we've got sufficient headroom and sufficient cash resources to build on where we are at the moment and expand the business.

Another question here. Operationally, how prepared are you to scale rapidly if CMS coverage is received? As we pointed out, we have a sales infrastructure that encompasses headcount and offices across 26 different states. So as soon as CMS coverage is received and completed finally through the system, we can start treating patients in those states, utilize our existing infrastructure. We certainly have also in the background plenty of capacity, both with devices and consumables. So we will be able to hit the ground running and allow ourselves then to scale as that coverage comes into play.

So there's another question on the non-U.S. territories absorbing cash. If so, how much? So I think, obviously, in FY '25, that was an area that was an investment for us in terms of getting the coverage, both in the U.K. and in Germany and was a net cash drain on the business. Going forward, our expectation is that, that will get towards a break-even situation and start contributing on a going-forward basis. So it is in that position now where it's starting to make that transition to be able to be a net contributor.

Very good. Another question here. Can you help me understand why obtaining Medicaid provider IDs in so many different jurisdictions. We had 9 in '24 and now we're up to 19, so we're making good progress. It's still not translated into significant revenues. And when do you anticipate significant revenues? The provider ID, Medicaid is a joint administered program where it's funded jointly by the federal government and the state government, but administered by the states. So even though we are a provider nationwide for Medicare, we need to get provider IDs in each state to be able to service Medicaid patients. We're having great success with getting provider IDs, for instance, Arizona was an example to driving business even prior to having clear coverage policy in place with the state like we have in New York, for instance. However, the turbulence that's been created by the Big Beautiful Bill has made that less reliable. However, we need to have the provider IDs who we can service certain subsets of the Medicaid population today that sets predication for need, but also for pricing for Medicare when they come to make a coverage pricing determination as part of their process. So we do expect that we will start seeing some revenue from other Medicaid states. But until CMS -- the effect of the Big Beautiful Bill and that turbulence abate and/or CMS natural coverage is achieved when the codes and coverage then is flushed through the system, which will start unlocking all payer groups, including Medicaid. We don't believe most expansion states on Medicaid will be substantial in the near term.

That's great. Mike and Jayesh, I think you've taken every question from investors. Thank you once again to you all for your engagement this afternoon. Mike, Jayesh, I know investor feedback is important. I'll shortly send those on the call to give you their thoughts and expectations. But perhaps before doing so, Mike, I should ask you for a couple of closing comments.

Yes. I'd like to thank everybody for joining us here. We have a lot going on and in an exciting space, and we do good by helping people save their limbs and improve their quality of life by doing so. So thank you for joining us.

That's great. Mike, Jayesh, thank you once again for updating investors. If I could please ask those on the call not to close this session, we'll redirect you so you can provide the company with your thoughts and expectations. On behalf of the management team of AOTI, I'd like to thank you for attending today's presentation and good afternoon.