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

For us, it doesn't mean that there aren't a handful of us at the company that look at new indications, new geographic opportunities, new products. We look at that. We can do both of those things. Ninety-five percent of the company is focused on this space at this time, this quarter, getting that business. So we're very focused on the indications we have, the sites that we have, and I think that's required for execution. And thus far this year, that has proven to be successful.

That's great. We've talked about RECELL GO and RECELL GO Mini being very important parts of the portfolio. Can you talk to us a little bit about how they've been playing a role in expanding utilization for you all?

Sure, sure. I mean, you can imagine that over the years, there's a lot of physicians that have learned the technique around RECELL ease of use, that manual technique, and they love it, we continue to sell it to them. But you can imagine also that new physicians, younger physicians, those that are new to the space, they are attracted to the automated and consistency of RECELL GO. And that is kind of the future for a lot of them. RECELL GO Mini really, again, listening to our customers about why they might not use it on smaller wounds and some of it is, you know, the cost of it or whether or not it's, it's the RECELL GO is built for those smaller wounds. Well RECELL GO is an answer, RECELL GO Mini is an answer to that, less expensive, built for those smaller samples of skin to process and use. And so from a product standpoint that addresses that, along with educational. Along with peer, we had an account for smaller wounds. It's not just RECELL GO Mini that addresses it. We had a larger account of ours that changed their protocol from anything above 20% TBSA to anything over 10%. And that was because of the 36% reduction the production length of stay data.

And on clinical data, you had some very exciting data on Cohealyx as the clinical results came out. And, you know, can you talk to us a little bit about that data? What did it demonstrate? And how do you think that can help support adoption in the future?

Yes. To us, we have a tagline, healing at the speed of life. Speed helps everybody. It helps that hospital to get patients back home sooner because it costs a lot to take care of an acute wound care patient. You can imagine it. The patient itself, the faster you can get in and out and their family and so on. But the Cohealyx 1 data basically says this, that if you have a patient and you're trying to prepare the wound bed for grafting, it's going to do it sooner than the competition. The data shows on average 11 days versus 31 days for the competition, as few as five days. And so that readiness to graft is important. Then you lop on top of that, RECELL, healing faster, reduction in length of stay, 1 plus 1 is you're out of the hospital days or even weeks sooner.

Potentially. Okay. And maybe we'll go to PermeaDerm next. Okay. You know, clinical and economic evidence.

Has been interesting there. How does that affect your view of its commercial potential? Well, I mean, sometimes things are really simple. You have a product in Allograft that has been effective for years. People are used to using it to temporize the wound, but sometimes it just doesn't make as much sense when you have a product like PermeaDerm that is easy to handle, store versus Allograft that you have to freeze thaw track a product that's opaque. If you think about putting a temporizing dressing over a wound so that you can assess that wound, I think it's important that it's transparent and you're able to see the wound. So being able to see the wound, being able to handle it, and oh, by the way, it's a third to half the price of Allograft, it's a matter of, I think, claiming the value of the product seeing that data, seeing it's comparable in terms of effectiveness along with the reduction in cost and spend, I think we'll be able to make some really good traction in the market.

You know, I think it comes to an ultimate question of how should investment. Think about you, right? Is it, are you a RECELL story, or are you a broader acute wound care platform? Um,

I would say we're a healing. We're a healing company, right? Because I think that... You take all three of our product lines across the portfolio. We speed healing, we enhance healing a better way. We're not about just wound closure. We're about healing effectively. For the sake of our patients, healing them cosmetically, healing them, you know, clinically. And I think from an economic standpoint, we have the opportunity to not only do that for the patient, but also save that hospital money and have a robust reimbursement platform that physicians can count on.

Okay, wonderful. I mean, look, maybe we'll spend a little bit of time on the financial model next, now that we've gotten a good overview of what's driving top line. You know, David, there's been a pretty impressive reduction in cost. You know, how do you think about that cash burn profile? And what's your view that the cash flow profile is going to continue to improve and will reach cash flow break even by Q4, which I think, I think it's been the target timeline.

John Aucott, yes, thanks, Neha. So last year we put in place a kind of a rescaling of the company. It was April. It was the second quarter of 2025. We took a look at all costs across the entire company, and we took out $10 million of OPEX, $2.5 million per quarter. And so right now, we are structured around $24 million per quarter of OPEX, and we don't see that growing. We don't see, we're scaled for growth right at the moment. We don't think we have to add additional salespeople to cover the territories we have. And so we're going to be looking at that even closer and potentially reducing our OPEX even some more over the next couple of quarters. We want to try and get as efficient as we possibly can. We can. So we burned a good amount of cash in the first quarter of this year, primarily because we have 1-time payments that happen in the first quarter around compensation and benefits. We took that cash burn down to $3.2 million in the second quarter, and we see that trend continuing in the third quarter to a point when we get into Q4 where we're going to be generating cash. And we increased our revenue guidance from $80 million to $85 million to $86 million to $89 million. And with that increase and with the revenue that we're going to be generating this quarter and next quarter, we can see a pathway to cash flow break even and generating cash. And it will be a huge milestone for this company. It's a huge milestone for many small companies to become self-sustaining. And that's our goal, is to become self-sustaining starting in the fourth quarter. And with our revenue growth sequentially every quarter this year and going into next year, we see us generating a significant amount of money.

Cash next year. Okay. And, you know, I think for investors, to your point, it's always been a focus on both. How do you continue to deliver exciting top line growth but also making sure that the business is on a pathway of sustainability? If we think about the operating leverage that investors can expect to see out of the business as, you know, it continues to scale. Do you feel like you have enough infrastructure in place to support a larger business? And how do you think about that balance of delivering top-line growth versus margin expansion? And then pathway to cash flow generation.

Yes, I'll comment a little bit, and I know Cary has a couple of comments he'd like to make also. But for us, we, again, we think we're at the right place. Level of commercial team to focus on the 200 burn centers, and there's a lot of opportunity within those 200, 125 burn centers and 60 or 70 trauma centers. So we have the right structure in place. And the operating margin, our operating leverage we're going to get is we're at 86% gross margin for RECELL. We do get some degradation of our overall gross margin because of the revenue share arrangements we have for Cohealyx and PermeaDerm, but we don't see that going below 80%. We think we'll be in the 82% range. So as our revenue grows, our OPEX stays the same, that operating leverage is all going to drop to the bottom line.

Cary, I know you have.

No, I mean, the key is we're built to grow. So we're not starving ourselves to get to cash flow break even. Cash flow break even, cash flow generation. At some point profitability is going to be built on growth. Our job in parallel to that is to make sure we're responsible about what we spend, what our return on investment is. Our commercial people and other people in the organization that have strategic and tactical things to accomplish over the next couple years know that they can get the resources they need as long as there is a business case for doing it. And so we will support that to make sure that we grow and we're not restricted in any way.

Okay, wonderful. You know, I think it's always helpful for investors to have a little bit of a framework what they perhaps have gotten wrong in stories. So if a new investor was to assess AVITA today, what do you think is kind of the typically most misunderstood part of the growth opportunity that the company has as well as kind of the general financial trajectory of the company?

I think it's a simple story to understand. And I think that it got complicated last year by some reimbursement challenges that were outside the company's control, as well as, I think, some expectation setting that there was going to be a speed to adoption of Cohealyx and getting through the Value Analysis Committee and all of that. I think the company has been on a great trajectory the last five years. They got interrupted last year. I think as time goes, we'll see 2025 as a 1-off. We grew at 11%, not terrible, but not what was expected. I think we're back on that track. I think people should understand that this company is completely under-penetrated, high value, high margin, really disciplined OPEX. At some point, no cash burn. I think it's really talented. We have not just talent in the company, but passion in the company. I think we have credibility in the marketplace. I think we lost, when I say marketplace, I mean with our physicians and customers. I think we lost some credibility last year externally. But I think we're getting that back gradually as we execute. And I think we maintain this very strong relationship because at the end of the day, physicians and customers, this is a customer-centric organization. No matter what happens, they find value in RECELL. They find value, increasingly so, in Cohealyx and PermeaDerm. And I think that is going to be the key to success and it's on us to feed that going forward and that's what we intend to do.

Yes, let me just jump in. A new investor, I think, has to look at our company and go, you know, we've been here in the U.S. for five, six years now, right? And it's taken us a while to get to where we are. And there have been a lot of reasons why it's taken us this far. But we have a large total addressable market, TAM, that we're underpenetrated on. So whatever that TAM may be, and there can be arguments about what that is, but it's somewhere in the range of $1 billion for all three of our products. We're only scratching the surface here, even after five years, and if I talk to a new investor I want to tell them, you know, don't look at the history. Look at us going forward. Because we have so much opportunity in front of us with our three products.

And maybe that's a great kind of jumping off point for my last question, which is, I always think it's helpful to give investors milestones that the company is focused on for the next 12 to 18 months. And so maybe as part of your concluding remarks, you could give folks two to three things that they should look out for as what you view is key milestones for the company over the next, you know.

Very near term. Yeah, I mean, I think we've talked about some of them. One is cash flow break even, cash flow, cash generation in Q4 is a huge milestone. I think there are a lot of companies that would trade places with us to have FDA approved products, to have Category 1 reimbursement products, products that prove themselves economically to our customers. But ultimately, if you just look at the financial performance of the company, number 1, we do what we say we're going to do. We have a history. Maybe I've been here, you know, 10 months or so. But everything that we've said every quarter has happened. And I think that going forward they should watch how we grow, how much we grow, why we grow. They should ask us to explain why we're growing, why we expect to continue to grow, so that we can explain those things and then they happen so that that credibility continues. Again, cash flow generation in Q4 and into 2027, as well as sequential revenue growth each quarter by product line.

Yeah, I don't have anything to really add on that because those are the milestones. The only 1 that I would potentially add is we will be profitable from a GAAP standpoint at some point. As our revenue continues to grow, we talk about the leverage on the operating expenses that we have, that that is going to at some point get to a positive bottom line. And we will be there. We're not projecting when that's going to happen at this point, but that's a milestone that we will continue to work towards, and you'll see it every quarter that we're going to get closer to that number.

Okay, wonderful. Well, Cary, David, it was great to spend some time. Congratulations on the recent performance and strength in the business. It's been phenomenal to see, and we'll keep looking out for those upcoming milestones.

Perfect. Thank you. All right. Thanks, Neha.

Thanks again, Neha.

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