Aroa Biosurgery Limited (ARX.XA) Q1 FY2026 Earnings Call Transcript & Summary

Welcome to Aroa BioSurgery's Investor Webinar and Q&A following the company's June 2025 quarter results announcement released this morning. [Operator Instructions] Please note that this session is being recorded. On behalf of AROA today, we have Brian Ward, Founder and CEO; and James Agnew, CFO. I will now hand over to Brian and James. Please go ahead.

Thank you, Sarah, and welcome, everybody. This is going to be a short presentation this morning, just a brief update based on the release today and quarterly report. So normal kind of disclosures disclaimer. In terms of this morning, I'm going to talk briefly about our financial highlights, operational highlights and then the outlook and then included in the presentation is an overview, some background on our operations and our strategy, but I won't be covering that today. So in terms of financial highlights for the last quarter, we've had a really good start to the year. So 1 quarter in and sales performance, both on the Myriad in AROA side and on TELA Bio is tracking in line with our expectations. This is the third consecutive quarter of positive net cash flow. So continue to be in positive territory, which is great. Cash receipts for the last the quarter is $22.5 million. We ended the quarter with a cash balance of $22.2 million, so up $200 on the beginning of the year. So from a cash flow perspective, really pleased with how things have tracked probably being more positive than we expected to be in the first quarter, which is really encouraging. In terms of operational highlights, Myriad and Endoform sales are up. So we've got a strong focus on these products, particularly Myriad, and tracking as we'd expect. OviTex orders have tracked ahead of expectations, which is really positive. So TELA remains very confident on the sales outlook and I'm confident on their financial position through the course of the year. So we feel good on both sides of the business in terms of where we are year-to-date. One thing I did want to mention was proposals from CMS in terms of reinvestment for cell tissue products or skin substitutes, so this affects Symphony. Recently, they released a proposal for some changes to reimbursement for these products. From what they're proposing, it looks very positive for Symphony in FY '26. So we have seen proposals from CMS previously that were not put into place in the following year. So at this stage, we're treating this as something that may or may not be put into place. If it is put into place, what we will see is a standard rate of payment for all products, that being at $125 per square centimeter, which is very favorable for Symphony. Also that payment in all sites of care will be the same. And then there'll be a separate payment for the products and for the surgeon, which has not been the case in the hospital outpatient department and the physician's office. So this would be a realignment of payment for these products from our perspective, a really positive change it certainly addresses some of the challenges that have been evident in the space for quite some time. So we feel that these are probably changes that will come into place, but I'll just temper that a little bit with there's been a number of occasions where CMS hasn't followed through with the changes. So just in terms of the outlook, we're reaffirming our guidance for the coming years, so $92 million to $100 million in revenue and a normalized EBITDA of $5 million to $8 million. So in terms of our focus this year, our strategy tends to be the same. So focused on large complex wounds and trauma and lower limb salvage, both of these areas have been targeted with Myriad, strengthening up our Myriad value proposition. So that's based on both the clinical evidence that's coming through, but also the financial and operational benefits that Myriad brings to hospitals, driving deeper penetration within the existing accounts that we're in, ramping up our sales faster and increasing the productivity of our sales team and targeting a wider use within hospital systems. So we have a focus on seeking some standardization within hospital systems, again, to help drive penetration. In terms of milestones this year, continuing to demonstrate various distinctive value and why it's a more favorable product compared to other products in this category, securing sympathy reimbursement in the physician's office, and this is really based on Symphony RCT. So completing that RCT is important. We're a long way through that study and expect to ramp that up in the third or fourth quarter of this year. And then one Myriad IDN conversion. So this is a standardization within a hospital system in the U.S. And we continue to track well on that initiative. So I'm going to wrap it up there and open it up for questions.

Thank you. So we do have a few questions through here now. So there is some interest around Myriad around the revenue growth through the quarter and active accounts, if you could talk to that.

Yes. Look, we don't typically sort of talk to specific results on quarterly, but I can say that both our active accounts and our Myriad are up on the prior quarter of last year. So look, I mean, we'll properly provide a more fulsome update at the half year but we can consciously say that it's unlike expectations and obviously growing at that level, which we expect to turn.

I've just got a question here from Elyse Shapiro. So I'm just going to take the unmute off there.

I guess just looking at Symphony and the reimbursement changes that have come through there, how are you thinking about growing the sales team to target, I guess, both maybe the out-of-hospital and the clinician office settings and what additional cost do you anticipate from that strategy? Or are you just able to leverage the existing team?

Yes. So we've -- we launched Symphony last year and had our team to focus on hospital outpatient departments within hospitals that were and physicians that we're already working with in the inpatient setting. So I think if we sort of roll forward to next year, we'll adopt a similar strategy. I think if you look back over the last 12 months, the thing that really held us back to his success with Symphony was uncertainty in the reimbursement situation, particularly the need for a clinical study. We'll have that clinical study in place. So we should be good to go with that for next year. So I think in terms of how we target these accounts, I see us still in a similar way. So not adding to the sales team that we have using the existing salespeople to focus on predominantly hospital outpatient departments and hospitals that they're already in and then surgeons that are already working with in the physician's office. I think the changes are really interesting if they go through. So what we've seen over the last 10 or 15 years is migration of patients to physicians' offices because the payment settings were more favorable there. I think with the changes that are being proposed, it's going to be neutral to surgeon or physicians whether they treat them in the physician's office or in the hospital outpatient department. So I think it's going to mean probably we'll see a movement in patients back to the hospital outpatient departments, which will work really well for us. So I think the proposals, if they go through it, great. They sort of reset the whole environment in a way that I think sets it up for products that are effective but also offer good value to patients and hospitals.

Got it. That makes sense. And then I guess just quickly on the numbers as well. With the maintained guidance, what level of flex are you assuming on R&D spend, especially as it relates to Enivo? And if you kind of are coming in ahead, would you reinvest more back into R&D or kind of take the profits?

Yes. So I think at the moment, we're going to keep our R&D is a bit flat. So we're not going to change that. It's pretty early in the year to do that. So the plan would be stick with the planned level of expenditure. Maybe there's a little bit of flex in the last quarter but we're really focused primarily on driving the top line result, but also delivering on the profitability for the year.

Okay. We've got a question here from [ Ross Sharon ]. When do you expect to be profitable at a net profit after tax level?

That's a very good question. Look, we could possibly be net profit positive this year. We'll be sort of very close to that at a net profit level. I mean, one of the things that in part the reasons why we sort of look at an EBITDA level is we do have a large accounting-based expense that goes through a share-based payment look, the accounting treatments of the awkward where a lot of that share-based payments hasn't even -- has not crystallized, but you don't actually see that come out through the P&L. But look, on a net profit level, based on the guidance, if we're up in the guidance, we should certainly be very close to net profit breakeven.

Okay. And we've just got a question here about if you could comment on the level of account penetration within existing accounts.

It really depends on specific accounts and how long we've been in those accounts. So a lot of our accounts I think as to really generalize, I think 78% of our accounts is still very immature. And there's a lot of opportunity for additional penetration within those accounts. We do have some more mature accounts. We're not only not only in a lot of them recall were in general surgery and trauma. So we got a small number of accounts that like that. But to a large extent, a lot of them are immature is a lot of opportunity for increased penetration.

Okay. And just the impact of U.S. tariffs, if you could just comment on that again?

Yes. Look, tariffs, we obviously started paying them in the 1st of April. I think we've previously said the net is not 10% of sales, it's sort of closer to probably 1.5% and 2% of sales. Look, that has been factored into our guidance that expense. So on the basis that it continues that current level of 10%.

Okay. And if you could also comment on the challenges and the focus around increasing sales?

Yes. So I think for us, in terms of how do we increase sales, that's sort of simple really, continued focus on the key procedures for us. So that's slowly limb recon and trauma. So essentially, working with the surgeons that we're already working with to use our products and more procedures but also a greater number of surgeons within the hospitals where we're now present using our products. So surgeons are naturally conservative. They need to see the product work in their own hands. And there is -- it takes a little bit of time to build the confidence in order to get increased use. So that's a big part of our strategy, just driving increased use with those surgeons in those hospitals. We're also seeing that getting interest from hospital systems in terms of the benefits that we can bring to their wider to hospitals that were not on within those systems. -- in terms of both the outcomes but also the financial operational benefits. So we're working on being able to increase the number of hospitals we're in within hospital systems as well. And that's more at a corporate level than in a physician labor or stage on label. So we have initiatives at the top of hospitals but also initiatives on the ground with surgeons and hospitals as well.

Okay. If you could also talk about the increase in revenue this quarter and whether there's further expected increases?

Yes. As James said, we don't -- this is quarterly, we tend to just focus on cash flow. So we don't know an update on revenue than the quarterly. So we will do that at the half year, but we report our full half year results. I think what we can say is that we're tracking in line with expectations where we expect it to be we're on plan from a revenue growth perspective. So both on the Myriad side and so on the TELA Bio. I think as I said earlier, TELA Bio tracking ahead of where we expected it to be for the first quarter.

And just a question here on the markets outside of the U.S, if you could just talk about the strategy there?

Yes. So outside the U.S., we tend to work with local distributors on a country-by-country basis. So we're in some jurisdictions in Europe. We're in the Middle East, Southeast Asia and so countries in South America. So these markets are relatively immature. We have seen some good growth over the last 24 months. A couple of markets that I called out would be in Canada, which is going really well, and it's a good growth in Germany as well. So each market is a little bit different. There's -- what you tend to see is differences in reimbursement and how these products are paid for, which can affect uptake as well. So most of our focus remains on the U.S., but we are beginning to put more effort into growing the business ex U.S. as well.

Okay. And just there's some interest in the view on the likelihood of achieving reimbursement at the close of the Symphony RCT?

Yes. Look, I think it's going to depend on the outcomes for the RCT. And I think if we look across all of our product portfolio, where we're using AROA ECM, the outcomes have been really strong. So we just published a study in Endoform, showing a difference there in terms of venous leg ulcers. We've shown a similar difference with diabetec ulcers as well. If you look at Myriad, we certainly can seeing better outcomes there. And then you typically see with other comparable products. So we're pretty confident about the outcomes for Symphony. That study still needs to run its full course. It's 120 patients were -- and 110 or so that are recruited and study but often to secure first. So probably the most uncertain thing about the study is just the rate of recruitment. That can be a little bit variable. So we're on track to complete that study towards the end of this year. Based on where we're sitting today, we'd expect to see a good outcome for that. And then with those clinical -- with that clinical outcome, the process is to take that to the max and get that added to the local coverage to allow for payment. So it's not a slam dunk, but I think things are pointing in the right direction for Symphony. So we have that study in hand. We have reimbursement in place. I mean particularly if we see the changes that have been proposed by CMS, we think we got a bit of a great position next year to capitalize on that.

Okay. And there's also some interest in the strategy around IDNs.

Yes. So we've been -- I guess, we started off and we're focused predominantly in hospitals. And what we've been able to demonstrate in hospitals is great clinical outcomes with surgeons, but also some significant savings for hospitals as well. And they kind of come from a couple of different places. One is the acquisition cost of the product is it's very affordable. So if there's a big saving on just the product cost. What we're also seeing is reductions in the rates of complication. So a lower cost for hospitals in terms of having to treat complications from patients. And then thirdly, we're seeing a much lower rate of application of our products. So not only does that save the cost of the product, but it also saves the cost of taking the patient back to surgery and having all those increased costs that go with that. So that has been noted by individual hospitals, but also something that is being seen within hospital systems as well. So we're now having conversations at a hospital system level where there's interest in what would it mean if I took all of those savings and I'm seeing in 1 hospital, and I was able to scale that across 100 hospitals or 20 hospitals, what would be the difference in cost savings? So we've been in discussions with several hospital systems in terms of potentially being able to be able to standardize on Myriad within those hospital systems. And there's a couple of things that are required for that to happen. So obviously, an agreement at the IDN or a hospital level, but then also there's a rollout process with individual hospitals as well and then obviously bringing surgeons on board and tight makes sense for individually for them. So it's a process that we're in. We see a great opportunity for Myriad to be product that is the standard for use in inpatient reconstruction, and we're certainly seeing good interest on that.

Excellent. Okay. Well, there are no more questions. So I think we'll conclude the webinar here. So thank you, Brian and James, and thank you for everyone for attending.

Great. Thank you.