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Good day, and thank you for standing by. Welcome to the AVITA Medical, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Ben Atkins. Please go ahead.

Thank you, operator. Welcome to AVITA Medical's Third Quarter 2025 Earnings Call. Joining me on today's call are Cary Vance, Interim Chief Executive Officer; and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website at www.avitamedical.com under the Investor Relations section. Before we begin, I would like to remind you that this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Cary.

Good afternoon in the U.S., and good morning in Australia. It's great to be with you today. As this is my first earnings call as Interim CEO, I want to begin by saying how much I appreciate the opportunity to speak directly with our investors, employees and clinical partners who make AVITA's mission to transform acute wound care possible. I've been with AVITA as a Board member for the past 2.5 years. And now, stepping into the Interim CEO role, I see the company with new eyes, but also with deep conviction. AVITA's purpose is meaningful, its people are talented and its products are transformative. My job and our collective focus is to turn that potential into consistent performance where mission, execution and shareholder value align. Let's be clear, this has been a challenging quarter. We reported approximately $17 million in revenue, below expectations and reflecting the ongoing impact of reimbursement disruption that began earlier in the year. We now expect full year revenue in the range of $70 million to $74 million, down from our prior guidance of $76 million to $81 million. As a reminder, in January, new Category I CPT codes for the use of RECELL took effect. Because CMS did not assign national clinical payment rates for these codes, responsibility for establishing payments fell to the regional Medicare Administrative Contractors, or MACs. The time required for each MAC to set rates and begin adjudicating claims created uncertainty, and providers awaited confirmation of reimbursement for RECELL procedures. As a result, many providers were unsure when or how claims for RECELL procedures would be paid. The good news is that significant progress has been made. As of today, all 7 MACs have now published or confirmed acceptance of provider reimbursement rates, providing clinicians with clarity and confidence of payment when using RECELL. We're already seeing early signs of renewed demand, and we expect utilization to normalize progressively through the coming quarters. With provider reimbursement now largely resolved, RECELL's value is increasingly recognized across data, adoption, payment and policy. At the foundation, there is powerful real-world evidence, clinical and economic data showing the ability of RECELL to optimize healing, reduce donor-site burden and shorten hospital stays. Inclusion of the CPT codes for the RECELL procedure within the CMS payment system establishes a clear pathway for clinician reimbursement. Predictable reimbursement now restores clinicians' confidence in payment. Together, these layers help fuel adoption as clinicians and hospitals integrate RECELL into routine practice. For example, building on the strong clinical evidence, including data showing 36% reduction in hospital length of stay, one of the nation's leading burn centers has now incorporated RECELL into its treatment protocol for burns under 20% total body surface area. This is a clear example of how strong data, clinical experience and reimbursement clarity come together to make RECELL a standard point of care. I can also share that since RECELL GO received CE Mark approval in Europe in September, we saw the first patient outside of the U.S. treated with the device in Germany just last week. It's an important milestone that broadens access to our RECELL technology and underscores its global relevance. While this quarter reflected the impact of reimbursement timing, it was also shaped by the pace of hospital Value Analysis Committee, or VAC, reviews and the evolution of our commercial organization. These factors collectively limited our near-term results and not the strength of our strategy or the quality of our products. In my first few weeks, I've spent time listening to our teams, to clinicians, our hospital partners and to shareholders. Their feedback has been candid and consistent. Our products are exceptional, but our performance hasn't always matched their potential. RECELL, Cohealyx and PermeaDerm make a real difference in acute wound care. And now, it's on us to ensure hospitals can put these products into the hands of their clinicians, and most importantly, on to their patients. That's where my focus is, turning potential into consistent, reliable performance. Under my leadership, we've moved quickly to refine our commercial organization, aligning structure, territories and accountability around our highest value accounts. These adjustments are improving focus, visibility of customer behavior and the coordination between our sales and clinical teams. To that end, we've taken a fresh look at our market opportunity to better align our go-to-market strategy with observed customer behavior. Historically, we've shared that across all U.S. burn and trauma hospitals, the total addressable market, or TAM, for AVITA's portfolio is about $3.5 billion, and that long-term opportunity remains unchanged. What has evolved is our understanding of where meaningful scalable use occurs. Roughly 90% of our revenue today comes from about 200 burn centers and trauma hospitals, core institutions that define acute wound care in the U.S. These represent our most immediate and scalable growth potential. You'll see in the slide that this focus segment represents $1.3 billion in targeted opportunity within a broader $3.5 billion U.S. market. We're currently serving about 5% of that segment, giving us significant runway for penetration and growth. In other words, this focus allows us to prioritize the hospitals and surgeons where our relationships are strongest and where we know adoption, utilization and cost portfolio expansion can be scaled most effectively. With this focus established, our execution priorities for the fourth quarter are clear. First, rebuild order momentum. With reimbursement clarity for use of RECELL returned, our commercial organization has a focused plan to reengage accounts that lowered their use of RECELL. This is back to basics execution, targeted outreach, disciplined follow-up and strong field accountability to deliver steady volume recovery. Second, drive consistent utilization of our products. Our sales and commercial teams are working side-by-side to increase case frequency and ensure that our products, RECELL, Cohealyx and PermeaDerm, become part of a routine clinical practice. Consistency and utilization creates internal champions, champions who help expand adoption. Third, complete the transition of our commercial organization and enhance forecast accuracy. With the commercial structure now in place, our focus is on ensuring accountability and giving our teams the tools to succeed. We're taking deliberate steps to drive more consistent and predictable revenue growth, grounded in a clear understanding of customer behavior. This includes moving towards more organic monthly purchasing patterns and refreshing our forecasting model to provide a more accurate view of future revenue. These priorities are about near-term execution, while serving the longer-term strategic vision that defines who we are and how we win. Consistent utilization is our foundation. Predictable use of our products drives predictable demand. Portfolio depth is our differentiator. RECELL, Cohealyx and PermeaDerm, used together, cover the full acute wound healing continuum. Patient impact remains our purpose. Every decision should ultimately improve outcomes for patients, clinicians and the hospitals that care for them. We've already talked about RECELL, the anchor of our portfolio and our foundation for growth. Let me turn now to our complementary products, Cohealyx and PermeaDerm, both of which extend our reach across the acute wound healing continuum. Cohealyx continues to emerge as a complementary growth driver. VAC submissions are underway in roughly 1/3 of our target accounts. As hospitals complete their reviews, we expect ordering to begin and build steadily over the coming quarters. Clinical feedback from our Cohealyx I study remains positive and consistent with our expectations, with surgeons noting rapid readiness for grafting. We expect full enrollment by year-end and anticipate results early next year. PermeaDerm also continues to perform well as a versatile biosynthetic dressing that complements both RECELL and Cohealyx across the wound healing continuum. We're encouraged by the early results from our PermeaDerm-I study, and we expect full data next year. Financial discipline remains a further top priority. As David will explain in more detail, we've taken clear steps to improve the efficiency of our operations. Our operating structure is leaner, our cost base is lower, and our teams are focused on doing more with less, all while maintaining the investments that drive growth. On the balance sheet front, we secured a waiver of our Q3 revenue covenant under our OrbiMed credit agreement and have agreed to an amendment lowering the revenue covenant for Q4. Looking ahead, we're maintaining balance sheet flexibility to ensure we have the capital resources to support our operations and growth plans. We'll provide an update on financial outlook, including 2026 revenue and guidance, in early Q1, ensuring that our guidance reflects both operational progress and our capital strategy. In the meantime, we are conserving cash and maintaining disciplined cost control, while continuing to support our operations. While Q3 marked a transition for AVITA, it also signals the beginning of a more focused, disciplined and accountable phase for the company. The fundamentals are in place: reimbursement stability; clinical validation; and a first-rate portfolio, RECELL, Cohealyx and PermeaDerm, that allows us to serve every stage of the acute wound care continuum. We are focused on execution, delivering consistent performance, restoring confidence in fulfilling our mission to transform acute wound care for patients, providers and health systems. I look forward to continued engagement with our shareholders and to sharing measurable progress in the quarters ahead. With that, I'll now turn the call over to David.

Thank you, Cary, and good afternoon, everyone. As Cary described, the third quarter was an inflection point for AVITA, one that reflected the challenges we faced this year, but also the actions now underway to set the stage for improvement. The results were disappointing, but maybe not surprising, given the timing of reimbursement resolution, the pace of hospital VAC reviews and the transition of our commercial organization. With those factors now stabilizing and our cost discipline firmly in place, we entered the fourth quarter better positioned to begin an upward trajectory, measured, deliberate and grounded in execution. I'll now walk through our financial results for the third quarter ended September 30, 2025 and provide additional context around our cost structure, liquidity position and financial priorities as we look ahead to the fourth quarter and beyond. Turning to the first slide. It shows a summary of our key financial metrics for the quarter, revenue, gross margin, operating expenses and net loss, which together reflect both the impact on revenue caused by dampened demand due to reimbursement uncertainty, but also shows the benefit of disciplined cost management, which we can control. For the third quarter, commercial revenue was $17.1 million compared to $19.5 million in the same period last year, a 13% year-over-year decline. This performance primarily reflected the temporary reimbursement headwinds, along with other factors, including the timing of hospital VAC reviews. However, for the fourth quarter, now that all 7 regional MACs have published or confirmed provider reimbursement rates, this peels away a barrier to provider use of RECELL and support the return to growth in RECELL revenue. As a result of the third quarter revenue, we are revising our full year 2025 revenue outlook to a range of $70 million to $74 million compared with our prior guidance of $76 million to $81 million. This adjustment reflects the slower-than-anticipated timing of reimbursement normalization, as well as our measured expectations for RECELL demand returning and utilization through year-end. Gross profit margin for the quarter was 81.3% compared to 83.7% in Q3 2024. The decline was driven by product mix, consistent with the increasing contribution of Cohealyx and PermeaDerm to overall revenue and other inventory-related adjustments. When isolating the RECELL franchise, gross margin remained strong at 83.6%, which we expect to sustain going forward. As a reminder, our average sales price share for Cohealyx and PermeaDerm is 50% and 60%, respectively. While these profit-sharing arrangements reduce overall reported gross margin as a percentage, they contribute incremental gross profit. And due to limited additional SG&A expenses associated with this revenue, operating profit is strengthened, along with operating cash flow. Total operating expenses were $23 million, down from $30.2 million in Q3 2024, a reduction of $7.2 million or 24% year-over-year. This improvement reflects the impact of our cost reduction initiatives and the ongoing transformation of our commercial and administrative infrastructure. Breaking that down, sales and marketing expenses decreased by $3.1 million, driven by lower salaries, benefits, stock-based compensation and commissions. General and administrative expenses declined by $2.4 million, reflecting reduced headcount and compensation-related costs. Research and development expenses were down $1.7 million, primarily due to lower personnel costs and the capitalization of certain project expenses, specifically in-house developed software. As previously disclosed, following the commercial field transformation in Q2, we reduced operating expenses $2.5 million per quarter, or $10 million annually. Actual results for the third quarter show that reduction, which will continue for future quarters. Operating loss for the quarter improved by 34% year-over-year, decreasing to $9.2 million from $13.8 million in the prior year period. Other expense net totaled $2.8 million compared to $1.1 million in Q3 2024. The increase primarily reflects a noncash charge of $2.2 million related to the issuance of 400,000 shares of common stock to OrbiMed as part of the August amendment to our loan facility and a $0.9 million change in the fair value of the debt. These items were partially offset by $0.3 million in investment income. Net loss for the quarter was $13.2 million or $0.46 per basic and diluted shares compared to $16.2 million or $0.62 per basic and diluted share in Q3 2024, an improvement of approximately 19% year-over-year. Turning to our cash position. The next slide shows the quarterly cash waterfall that illustrates our continued progress in managing our cash. We began the quarter with $15.7 million in cash, cash equivalents and marketable securities. In August, we strengthened our balance sheet through a $13.8 million private placement net of expenses. From there, the waterfall chart shows operating cash use totaled $6.2 million in the third quarter, a significant improvement compared with $10.1 million used in Q2, representing nearly a 40% reduction quarter-over-quarter. We ended September with $23.3 million in cash, cash equivalents and marketable securities. This trend reflects the tangible benefits of our cost actions and tighter cash management that we can control, while we return to accelerated revenue growth in future quarters. With our cost structure firmly in place, as revenue grows in 2026, we will methodically move towards cash flow breakeven. Turning to our debt facility with OrbiMed. As of September 30, we secured a waiver for our third quarter revenue covenant under the OrbiMed facility at no cost. In November, we entered into a sixth amendment to the agreement, which lowered the fourth quarter revenue covenant to $70 million. Further amendment of the 2026 revenue covenant, if necessary, will be addressed once we have established revenue guidance for 2026. We are also evaluating capital funding options to ensure AVITA has sufficient resources to support operations through cash flow breakeven. We expect to provide an update on our capital plans together with 2026 financial guidance in early Q1 of 2026. Looking ahead, our financial priorities are clear: first, support revenue recovery as clarity around provider reimbursement stabilizes physician use of RECELL; second, establish a more targeted approach to our large market opportunity to ensure every dollar spent advances putting products into the hands of clinicians and on to patients; third, sustain our disciplined use of cash to support the pathway towards cash flow breakeven. Lastly, with our significantly leaner cost base and stronger visibility into utilization behavior and better forecasting, we are entering a more focused and accountable phase for the company and towards financial sustainability through execution on both growth and efficiency. We remain committed to transparency and execution as we close the year and prepare to share updated financial guidance in early Q1. With that, I'll turn back to Cary.

Thanks, David. To close, while we adjusted our revenue forecast for 2025, the actions we're taking now are setting the stage for a stronger 2026. AVITA has always had the right clinical science, technology and products. What's changing now is how we operate. We've engaged accounts as reimbursement clarity returns, reset our commercial focus and are establishing the structure and accountability needed to deliver consistent performance. I'm proud of the team's resilience and focus and confident that we're setting the right conditions for renewed and sustainable growth. With that, let's open the line for your questions.

[Operator Instructions] Our first question will come from Ross Osborn of Cantor Fitzgerald.

So maybe starting off, can you spend a little bit more time on the initiatives you guys are taking to better be able to forecast the business? Just curious how you're thinking about that as we're getting close to 2026.

Sure. I mean, good to hear from you, Ross. It gets all the way down to the rep level, to the customer level and understanding how our customers are utilizing the products and then, in turn, how they intend to purchase the products and what kind of cadence that is. And then, we have really good modeling in our sales support structure and really feeling like that's going to even out from month-to-month and quarter-to-quarter now that we've had a number of months under our belt with some of these newer products and newer customers. And so, between the processes and the people that are involved in it and the leadership that is now in place, I think we're going to improve quite a bit.

Okay. Great. Glad to hear it. And then, nice to see the European approval and realize you're targeting select geographies at this point. But how should we be thinking about your need to balance resources as far as launching in a new market, especially one as fragmented as Europe versus kind of getting the U.S. business back and steady?

Yes. I mean, our primary focus is the U.S. We're laser-focused on the U.S. We're going to be putting in place limited resources, selecting distributors in selected markets, as you said, really trying to understand customers in the market there and getting traction, getting acceptance and clinical champions in those markets. And so, while we're committed to them, we understand that our focus and our growth is going to come in the U.S. for a good long time. We have to get better at what we do in the U.S. I don't believe we're going to be bifurcated or distracted at all by what we're doing in other countries outside the U.S. And so, it's not a balance. It's a focus on the U.S., but with clear intention in these other countries.

And our next question will be coming from Josh Jennings of TD Cowen.

I was hoping to just -- it's still early days with the normalization of reimbursement and issuing finalized pricing under these new CPT codes. How -- there's probably a wide range of responses from accounts. But how are you guys thinking about the recovery, our accounts, with I guess written policies in place, are going to have confidence in reimbursement [ going forward ]? I'm sure some may want to try and make sure they get reimbursement. But should we be thinking that early 2026, we're going to be back to baseline in terms of having a [ resale ] customer base have confidence that reimbursement will come through?

Sure. Good to talk to you, Josh. This is about just educating them with the codes and having them start using the product and see that they have that reimbursement and showing and proving to them that it's in place. I think that we've been trying in parallel -- as we've been waiting for the MACs to approve and publish, in parallel, we've been setting up our accounts so that there's not too much time between when they publish and when they feel confident. But yet, there is going to be a bit of a lag. And so, we're in earnest trying to get them up to speed so that not only the physicians, but those that are filing the claims are aware of what they need to do and feel confident about it.

Josh, this is David. Just to add on one thing on that, and that is, as we talked about, these claims go all the way back to January. And so, these -- the MACs are going to adjudicate all of those claims going back to January that are still outstanding. And so, that will also lead to physician confidence when they realize that they're going to get paid for those claims that they've already filed going all the way back to January.

That's helpful. And just any update just on VAC approvals for Cohealyx and how they're trending? And any help just thinking about how many accounts may have the green light for Cohealyx utilization at the start of '26?

Yes. I mean, we have about 1/3 of our accounts that have -- that are in the VAC, and about 2/3 of those are scheduled to come out of the VAC in the fourth quarter, but we all know it doesn't always happen on time. So let's say, a fraction of that happens. And then, the idea is how do we truncate the number of days between when it's approved and when they order, and then when they order and when they use it and how much they use it. And so, our teams in the field are busy preparing for that VAC approval, and so that there are no gaps between that process and the ordering and utilization process.

Understood. Just one more. Just are there accounts where RECELL, Cohealyx and PermeaDerm are all available through VACs if needed? And are you seeing any signals in those accounts around the sales synergies and just the utilization of all 3 in specific cases has given you guys confidence that this portfolio can ramp once the RECELL reimbursement turbulence is now -- you guys are making your way through the eye of the storm or out of the eye of the storm and VAC approvals are coming for 2026? I'd love to just hear are there any signals from accounts where they have all 3 products in hand and are utilizing them?

Yes. Josh, thanks for the question. This is David again. So as you know, RECELL is already through VAC in the majority of the accounts that we're already serving. There are a few that we still are going through some of the trauma centers. But for the most part, RECELL is already approved. So what we're looking for is those VACs for PermeaDerm and for Cohealyx. And at this point in time, we do have accounts that are approved for all 3 of those, and they are using them on wounds. Now, it's still early days, and we will be able to provide more information on that. I think it's a good KPI at some point to share with all of our investors and our analysts. But at this point in time, it's a little too early to say what momentum we're getting from those hospitals that have all 3 approved.

Makes sense. We'll wait for some updates on the next earnings call.

[Operator Instructions] Our next question will be coming from Ryan

This is Sam on for Ryan. Maybe I can start about how you're thinking about the spending outlook, given where the balance sheet sits today and cash profile. I guess, is there more that needs to be done to right-size the organization going forward? Or are you pleased with how the teams are set up today?

Yes, we would -- thanks for the question, Sam. It's David O'Toole. So I had a few comments in my prepared remarks. And we're at a place now where we believe our G&A and our sales team is at a level where we can maintain it. We don't think there are any more additional reductions in expenses that need to happen. And we're comfortable with -- as shown, that our cash use is declining because of the restructuring that we did in the second quarter, going from $10 million use of cash down to $6 million. We want to continue that trend. But we're not going to do it. We can't cut our way through to profitability. You just can't do that. You know that. But what we are at is a place where our expense structure is very disciplined, very solid. And now, it's in a place where we can have that expense structure so that when our revenue increases, it will continue to get us on a path to profitability and cash flow breakeven.

Our next question will be coming from Chris Kallos of MST Access.

Just staying with the sales team, David or Cary, I know that was a big focus early this year in terms of reconfiguring how those -- that team is being incentivized. Are you thinking about changing the incentive structure for what you have in place or moving towards more of a portfolio sales approach rather than medical detailing?

Well, I've been in the role a few weeks. I'm going to put a lot of sales compensation plans together. I think for us, we're going to want to make sure that it's aligned with what we're trying to accomplish. I think beyond that, as we're in the process of looking at 2026 compensation plans, I do think that it will be simple and fair and directed towards growth. And that's probably all I can tell you right now, but it's definitely going to be aligned with what we're trying to accomplish in the field.

Yes. I guess that's probably unfair at this stage to ask those questions. Maybe a question for David. With the current guidance such as it is, does that factor in any catch-up from the backlog of reimbursement payments?

Chris, good to talk with you, and thanks for the questions. I really appreciate it. Look forward to seeing you down in Australia next week, as always. But from -- this is not going to be a light switch that comes on with the MACs now publishing and having the prices out there. It's going to take a little bit of time. We are out there educating our clients, our customers that it has happened and that they will get paid. But it's -- we have to rebuild the confidence of those providers to use RECELL and to know that they're going to get paid. So the guidance for the rest of this year is really a result of the lower revenue from the Q3 and really from the lower revenue from January of this year, caused by the reimbursement headwinds. As we said in our prepared remarks, we're going to give a complete update of our revenue guidance for 2026 in early 2026. And so, we'll have a -- everyone will have a better picture of what 2026 looks like at that point.

Great. And David, is it too early to talk about breakeven targets?

Yes, it is at this point. Cary has been on the job for 3 or 4 weeks now. We're all just kind of resetting. And we will be able to give more color around that and all of the revenue guidance for 2026 at the early part of the year.

And I'm showing no further questions. I would now like to turn the conference back to Cary for closing remarks.

Thank you, operator, and my thanks to all of you for your questions, your engagement and support. I think we've used the word headwinds quite a bit, both in our remarks and in some of these responses. I think what's interesting about the company is that the very same things that have been headwinds are going to be tailwinds and are going to propel us going forward. I think sometimes, the company has issues like recalls and other things that are just stopping them in their tracks. I think in this case, if you take a look at VAC committees that have held us up a bit, those same approvals are going to propel us forward. The same thing occurs with reimbursement uncertainty. When there is certainty, it will propel us forward. The same thing happens with the commercial organization. When you optimize that, that does propel you forward when you get data that tells you that you're saving money and making money by using and purchasing our products. Those types of things propel you forward financially and clinically. There's really strong evidence that AVITA and our products are going to make a growth move in 2026. And so with that, I look forward to discussing that further progress in the weeks and months ahead with all of you. Thank you.