AVITA Medical, Inc. (RCEL) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining the AVITA Medical quarterly Australian Webinar. I am Rudi Michelson of Monsoon Communications. AVITA CFO, David O’Toole is in Australia for a Sydney-Melbourne roadshow this week and joining us from the U.S. is CEO, Cary Vance; and Vice President, Investor Relations and Corporate Communications, Ben Atkins. This webinar has been arranged so everyone has the chance to be brief, direct and ask questions on AVITA's progress. Now let me point out you can submit questions using the Q&A function, and we'll get to them after the presentation. I'll now hand over to Cary Vance to begin the presentation.

Thank you, Rudi. Good morning, everyone. Welcome to this second quarter briefing. It's good to be with you again. I think it's important to note that the last few quarters that I've been in Australia, we've laid out the plan for the company. We've executed to that plan, and that continues today. So, I look forward to the conversation. Next slide, please. And the next, please. So well, if you look there in Q4 of 2025, I took over in mid-October, and we talked about assessing the business, understanding it, stabilizing it, having an understanding of our customers why they buy, why they might not buy, the challenges that we have, any internal lack of efficiency and effectiveness, structurally, organizationally, and so on. So we did a number of things in Q4 to prepare us to achieve and be successful in 2026. As a result, Q1 had growth quarter-over-quarter at $19.3 million. And then this past quarter, second quarter, $21.7 million. We expect that to continue. We expect sequential growth quarter-over-quarter. As you can see on the right side of this slide, we are growing across product lines. We are growing both in the U.S. and internationally. A lot of good things happening that, frankly, we expected to happen and we expect to continue. As a result of not only what we've achieved in the first half of the year, but in the manner in which we achieved it, felt very comfortable raising guidance to $86 million to $89 million and also expecting to receive -- or expecting to achieve cash flow breakeven by the end of this year and excited about that. Next slide. David?

So good morning here in Australia. I'm going to go through a couple of these slides, and then I'll give it back to Cary to talk about some other interesting things that are going on in the business. As Cary indicated, we had $21.7 million in Q2 of 2026. That is a 13% increase over Q1 and it's the second sequential growth of revenue that we've had. Q4 of last year to Q1 of this year was, as you may remember, 9.7% and so we followed it up with a 13% growth rate from Q1 to Q2. Year-over-year, last quarter, we grew by 18%, the $18.4 million in Q2 of '25, which is, again, a very healthy growth from where we were just a year ago. Gross margins are staying right where we like them to be. We'd like them to be maybe even a little bit higher, and we're doing everything we can to increase those margins even in light of the fact that we're growing our other products, which we share ASP with. We -- just to remind everyone, the ASP for Cohealyx is shared 50-50 between our partner, Stedical I mean Regenity. And then PermeaDerm, we share the ASP 60-40. So it does have an effect of decreasing our overall reported gross margin because the gross margin for RECELL is 86%. And so, we're looking for ways to increase our margins, but we don't see it being anywhere lower than this 82% to 83% gross margin rate. Very proud of the fact that we're keeping operating expenses in line. As you may remember, in Q2 of 2025, we did a restructuring of our sales team. We also took some G&A costs out and so, right now, the run rate for operating expenses is around $24.5 million, and we see that continuing. Another great metric is that our overall net loss is decreasing each quarter and significantly from 2025. We are down to a $7.7 million loss and that's almost a $3 million increase from where it was in Q1 of '26. Cash use, as I indicated last quarter would go down this quarter, and that's what happened. We were using -- we used about $9.9 million of cash in Q1, and we are down to $3.2 million in Q2 of '26. And that is going to continue to decrease until we cross over and start generating cash in the fourth quarter. Just real quickly. Cash balance was $11.1 million at the end of Q2. Next slide. Well, Cary talked a little bit about the fact that we have increased our revenue guidance for the year. We're now -- we moved it up from $80 million to $85 million. Now it's at $86 million to $89 million. We do expect to have sequential growth in the third quarter. And then again, we expect sequential growth in the fourth quarter and we have a high degree of confidence that we can get to that 86% to 89% (sic) [ $86 million to $89 million ] range. I've talked a little bit about all of these already, the gross margin and the operating expense. And so, I think we'll just go to the next slide. So to recap, we've increased our revenue guidance from $80 million to $85 million to $86 million to $89 million now. We are going to get to -- we expect to get to cash flow breakeven in Q4 of this year. We have enough cash on the balance sheet to get through to that very large milestone of getting to cash flow breakeven in the Q4. We're well within the new debt covenants that we did with Perceptive. Just as a reminder, we did the Perceptive debt agreement. We took out OrbiMed's debt facility. And the reason we did that was to reset the revenue covenants in that debt facility. As an example, the debt covenants -- or the revenue covenant for this year is $73 million. And so, you can see that we're well above that with the revenue guidance that we have at $86 million to $89 million. We do have another $10 million that we can take from the Perceptive debt facility when we reach $85 million of trailing 12-month revenue. And with the new revenue guidance, you can see that, that's going to happen. It doesn't mean we're going to take it, but it does give us the flexibility if we so choose, we will reach that $85 million before that option expires in March of 2027. I'll turn it back to Cary now.

Thanks. Next slide. So before I get here, I think what David is talking about there is the kind of stability that we are looking for as leaders of the company, but that investors are looking for too. I think permeated through all of that is a lack of distraction. If you look at taking care of our cash, keeping OpEx steady, keeping margins steady, stabilization of our people and retention, all of those things solving the reimbursement issues from last year. I think we'll look back in 2025 as a one-off of several headwinds as we indicated last year at the end and also a number of ways that we stabilize the business, keep very focused and we're all focused on growth. The only thing that's moving is the growth of our revenue and the adoption of our products. I put this photo of this patient on here, I think, to remind us all that [indiscernible] reimbursement and all of those key drivers of our business and our guidance are patients that are benefiting from our technology. And we're extremely humble and driven by that mission. And I hope that anybody that invested in this company, aside from the kind of return you would expect from us that you feel good about contributing to this kind of good work in the world, including in Australia, which we're making some headway commercially there as well. From a volume perspective, I think it's important for us to note that it's not just revenue that's growing in RECELL, but volume itself, volume of kits. It's also important that as we invested in RECELL GO that was part of the strategy to expand utilization to other types of wounds to smaller wounds. The way that you address expansion into those smaller wounds, #1 is education, education on economics, on clinical benefit. But also providing a technology that fits better to that type of wound treatment. And so, RECELL GO mini does that at a lower price point, smaller kits for those smaller wounds. And that's how it's being used. It's being used as we thought it would. And I think it's important for us to maintain our humility and continue to look for ways to improve the business, but I also think it's gratifying to know that when you set a strategy, when you develop a product, and you set out to do something with it that it acts the way that you thought it would because it gives you confidence that as you do things like that going forward that you know how to do it well. And that's a good example of launching an ancillary product to our flagship in RECELL GO mini and having it perform the way you intended. Obviously, last year and even beginning of this year, we talked all about reimbursement. If I were all of you, the way I would look at it is this 2 years ago, we got a CPT I code, and we thought this was going to be national across the country and it was just going to be put in place by CMS. CMS found it too complicated and wanted us and physicians to go back and simplify things. So, while they were doing that, they delegated the publishing of the rates and the adjudication of claims to those Medicare Administrative Contractors, the 7 MACs that we've been talking about forever. So the company struggled with those MACs to try and get them to publish, which they did very slowly over the course of the year. And that cost us some growth last year as a result of uncertainty in the market with physicians not feeling like they weren't sure if they were going to get paid. And if so, what they'd be paid. So we finally got all of that figured out in Q1 of this year. And so, we see that type of stabilization with the MACs. People are getting paid. Things are good. And the even better news is that CMS just proposed and will be finalized end of October, November, that starting January 1, they will be handling the claims nationwide that the set of codes are simplified, as it says here on the slide, they've bundled the steps in the process, harvesting, preparation, application into one. Everything is very clear, transparent, predictable because obviously, money and the reimbursement drives it. But the confusion, the lack of clarity is the thing that probably disrupted it even more than the economics of it. And so, we're really excited. The physicians were involved in that process. The American Burn Association has told physicians. They've been talking about this whole concept. So over the course of the next 4 months, we'll reiterate with those hospitals that this is going into effect January 1. They're expecting it. They're excited about it. And I think patients will benefit from it as well as AVITA in the process. Little things, though, too. I think it's pretty much the same rate. It's just very consistent, helps us with the outpatient market. But I think the fourth bullet on the left here, just a simple thing that makes sense and that is if you have a small [indiscernible] by size, a small wound on the belly, let's say, of a 4-year old. Well, that wound size is not particularly large, but as a percent of total body surface area on that 4-year old, it's quite large and quite impactful to that patient especially as they grow and the potential for scarring and a number of other things. They shifted that from a straight up size of the wound to a percentage of total body surface area, which makes complete sense. It drives the right behaviors with our clinicians for those young patients. And so, we're extremely happy about that. Again, the reason why reimbursement matters the most is the consistency and transparency and predictability of it nationwide. The whole MAC thing goes away on January 1 and we'll benefit from that permanence going forward. Next slide. Again, just a reminder that our portfolio has the ability to treat the same patient same -- with the same physicians, same hospital, very efficient. We're already in those cases. So selling additional products in our portfolio is very easy. It's the same conversation about a particular patient, what they might need. And oh, by the way, you may want to try another product from AVITA in the process. So while that patient can benefit from other products in our portfolio besides RECELL, the company can also benefit from a revenue standpoint on a kind of a per patient basis, per wound basis. And you can see that from this slide that if PermeaDerm, PermeaDerm plus RECELL, all 3 products used on the right-hand side, there's a multiple of revenue on that same patient that same incident. And so, I mentioned last week in my remarks that 25 hospitals have now experienced using all 3 products. We're still early days in trying to -- for them developing synergies between the 3 products. Obviously, us getting through VAC, a number of hospitals right now. We're probably at that 35% to 40% range in terms of those that have gotten through VAC. We still have about 50 in VAC, about 10 to 15 of them per quarter are going through VAC, and then that gives us a license to compete and win business and grow that Cohealyx business as well. Next slide. So what you see on the slide here is clinical data and clinical studies. Some of this -- the interim report for Cohealyx was released in April. We're going to have an interim report on PermeaDerm here this month. And of course, we have the RECELL data that came out with a 36% reduction of stay. So what do all 3 of these have in common? Really 2 things to me. Number one is speed. Speed to healing, speed to wound bed readiness, efficiency, length of stay, speed, speed, speed. And so, that's great for the patient. The patient gets treated sooner. The patient gets out of the hospital sooner, back home to their family, to their life, healed in all sorts of ways. But also what's on this slide is money because time is money. And so, when patients are released earlier from the hospital, that's fewer days in acute care that a hospital has to care for that patient. If they're able to graft that patient and apply RECELL 20 days sooner, let's say, by using Cohealyx instead of the competition, that's real, that's 20 days of less pain, less dressing changes, less chance for infection, but also, again, sooner getting out of the hospital. And so -- and then PermeaDerm is really -- there's a lot of efficiencies around handling it, preparing it as opposed to allograft. But what you'll see from the data is that straight up, this saves them money with product that has better workflow and better transparency to monitor the wound bed. And so, we're excited about what's going to come out in the next week or so. Next slide. Again, this is a summary slide. What I love about the company, and I think what's transpired over the last few quarters is that the company is simple. It doesn't mean it's easy, but it is simple. We have 3 products, high margin, consistent OpEx and a really talented, passionate team that has everything they need to compete every day, very underpenetrated. There's a lot of room to grow, not just in trauma, not just in small wounds, but even in large wounds in burn. New physicians, new wounds, different sizes and different types. There's a lot of room for our team to grow. We're very efficient. While we grow, we're not going to have to add a lot of people. We're not going to have to spend a lot more money. We're positioned to grow and being very disciplined in our operating mechanisms and really excited about the future. And again, when I reported out on Q2, the reason why I was most excited about it is not because of something that was accomplished. It was because of something that is happening. This is a continually growing business. It grows on itself month after month, physician after physician and that bodes well for the future. That bodes well for revenue guidance, raising and for continued growth throughout the end of the year and into next year. And so, we're really excited. Happy to take your questions if you have any at this time.

Thank you, Cary. We'll now move on to the Q&A. [Operator Instructions] And I'll now hand over to Ben Atkins to run the Q&A.

Thanks very much, Rudi, and thank you, Cary and David. So good morning, everybody. Welcome to the Q&A portion. So I have a few questions which have been submitted to us in advance. And as we -- the presentation has been going on, I believe we have a few questions that have come in live. So what I'll do is I'll start with a couple of the questions that came in advance and then we'll kind of intermix them as we go. So Cary, first question to you. You've now delivered 2 consecutive quarters of sequential revenue growth. What gives you the confidence that the momentum you saw in Q2 can continue through the second half?

Well, thank you. It's a little bit about what I was just talking about. So I sit in a forecast call every week, and we talk by product, by account to a good degree, by region of the country, outside the country. We understand which physicians are using it, which ones are not. Those that aren't using it, why they're not. And so, we know, I think who we can count on to continue to use it or at a greater level. And so, I think understanding the business, understanding the levers, understanding the growth opportunities, the funnel, I think gives me the confidence to know that we're going to sustain what we have and build upon it. And that's the reason why I can confidently say we're going to continue to grow in the quarters ahead.

David, I'll put the next question to you. We've had a few questions actually regarding the sort of the cash flow breakeven. So I think this will help you capture it in one. Cash use improved quite significantly in the quarter, and you're now targeting cash flow breakeven in Q4. What are the key things that need to go right between now and then to achieve that?

Yes. Thanks for the question, Ben. And there are a lot of factors that go into reaching cash flow breakeven. The easy ones are that you need to have your revenue get to the levels that we adjusted our guidance to. And so, the way we get to cash flow breakeven first and foremost is to reach our revenue goals of anywhere from $86 million to $89 million. We hope to be at the top end of that range. And so, that's the first one. The second is to maintain operating expenses in the level that we're already at. We don't see the need to increase our operating expenses in the third and fourth quarter. So that is a major factor to get to that cash flow breakeven. And just a reminder on the operating expenses, which are at $24.5 million, there's a number of noncash items in that $24.5 million, including stock-based compensation and depreciation and amortization and other smaller noncash items. And then the third item that you need is to continue the gross margin percentage in that 82% to 83% range. If there's mechanisms that we can use to increase that, we're looking at those, but we need to be in that 82% to 83% range for gross margin. And then I guess I'll just say one last thing is that our accounts receivable team is very good at collecting cash, and collections of cash are very important, obviously, to get to that cash flow breakeven in the fourth quarter. Those would be the 4 items.

Thank you, David. Let me just make the observation in the chat that they're getting a bit of an echo in Australia. Obviously, I can't hear what you're hearing there, and I apologize if anyone is having some difficulty. But just to let you know that we will be publishing the webcast on our website where we -- it should have good sound. So if there are any problems, you can always come back to this in the days ahead. Moving on to the next question. We've had a couple of questions before and actually just during the chat. Looking at how we're thinking about the expansion from burn into some of the areas of trauma. And I think they're sort of related here in this question. You mentioned that 25% cost -- Cary, you mentioned that 25 hospitals have now had experience with all 3 products. How should investors think about the opportunity to grow revenue within your existing 200 hospital base as adoption of the broader portfolio develops? And when will the company be looking to expand beyond that? And perhaps the second part to that question which is related is just sort of how we could be thinking about the move more into trauma as well as burn as well?