RCEL - NASDAQ

Good day, and thank you for standing by. Welcome to the AVITA Medical, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message saying your hand is raised. To withdraw your question, please press star 11 again. Be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Ben Atkins. Please go ahead. Thank you, operator. Welcome to AVITA Medical, Inc.'s fourth quarter and full year 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. Thank you for joining us today. Before we get into the numbers, I want to start by coming back to how we closed the last call. In Q3, I ended with three priorities: driving disciplined execution, refining our commercial focus, and positioning AVITA Medical, Inc. for growth in 2026. The fourth quarter was about delivering on those commitments. You can see that summarized on the slide in front of you. We exited the year with a more disciplined operating model, improved visibility into cash use, and a clearer understanding of how our customers adopt and use our products. We refined our commercial focus around utilization in our core burn and trauma centers. And importantly, removed sources of friction, reimbursement uncertainty, and restrictive balance sheet constraints that had weighed on execution throughout 2025. These are not headline outcomes on their own, but together, they matter. They make the business more understandable, more forecastable, and more repeatable. As we walk through the quarter today, you will hear how those execution priorities show up in the numbers, our operating cadence, and in how we positioned heading into 2026. Turning briefly to the results. We reported fourth quarter revenue of $17,600,000 and a full year revenue of approximately $71,600,000. This represented about 11% growth over 2024 and was in line with our updated revenue guidance. From my perspective, the fourth quarter was less about acceleration and more about control. The numbers reflect the business that is operating more predictably with greater discipline. David will walk through the details in a moment. A major focus throughout 2025 was resolving reimbursement uncertainty of ReCell. As of today, six of the seven Medicare Administrative Contractors have published payment rates for ReCell procedures. This removes the key constraint that weighed on utilization throughout the year and has begun to restore confidence for clinicians. As we said last quarter, predictable reimbursement not only for our products, but also for the clinicians who use them, is what allows our strong clinical and real-world health economic data to translate into routine standard use of ReCell. With that clarity in place, we are now seeing early signs of utilization beginning to normalize as accounts reengage. Ultimately, growth in this business is driven less by adding new hospital accounts and more by increasing adoption, utilization, and repeated use of our products—ReCell, CoHiliX, and PermeDerm—by clinicians. Roughly 90% of our revenue today comes from about 200 burn and trauma centers. We have aligned sales incentives, forecasting assumptions, and field activity around earlier adoption and repeat use within these core accounts. We have also continued the shift away from bulk ordering toward more organic monthly usage patterns. Utilization matters, because it creates predictability for clinicians, for hospitals, and for our business. As we look ahead, utilization will become an increasingly important way we value execution internally. Today, the focus is on establishing the right operating cadence and doing the fundamentals well, so progress can cascade and compound over time. That consistency is supported by the breadth of our platform. Our strategy is built around a single integrated platform—ReCell, CoHiliX, and PermeDerm—used repeatedly by the same clinicians across multiple patient episodes. ReCell remains the foundation of our business, supported by extensive clinical evidence demonstrating faster healing, improved outcomes, and shorter hospital stays. The CoHiliX I post-market study is now fully enrolled. And the PERMEADERM-one study is nearing full enrollment. These studies are designed to generate practical real-world clinical and economic evidence that reflect how surgeons use these products in wound care, with data expected later in 2026. At the 2026 Boswick Burn and Wound Symposium last month, investigators presented early findings and case experiences from these studies. Also notable, two cases presented from the podium reported all three of our technologies—ReCell, CoHiliX, and PermeDerm—used together on individual patients. This reinforces that our strategy to evolve from a ReCell-only story to a multiproduct acute wound care platform is translating into real-world clinical practice and higher revenue per patient opportunities. Outside the U.S., we are taking a disciplined distributor-led approach as we build our footprint in select markets where there is clear clinical need and the right regulatory and operational foundations in place. Since receiving CE Mark approval for ReCell Go last October, we have supported initial clinical use in a small number of European markets, focused on establishing familiarity and operational readiness. In the aftermath of the tragic nightclub fire in Crans-Montana, Switzerland, our teams and distribution partners were able to respond quickly to requests from surgeons because those foundational elements were already in place. Our role in situations like this is to remain responsive and reliable in support of patient care under extraordinarily difficult circumstances. We will continue to partner closely with the burn community to help ensure access to ReCell where and when it is needed. As David will walk you through, our commitment to execution discipline is reflected in our financials, particularly in our cost structure, cash use, and balance sheet. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. This was less about adding capital and more about removing the distraction of restrictive covenants so the organization can stay focused on execution. Turning to 2026, we expect full year revenue of $80 to $85,000,000, representing growth of approximately 12% to 19% over 2025. This outlook reflects normalization of ReCell utilization, expanded portfolio use within core accounts, contributions from CoHiliX and PermeDerm, and a more predictable operating environment. This is execution-led growth, driven by consistent delivery, quarter by quarter, and not one-time events or aggressive assumptions. With that, I will turn the call over to David to walk through the financials in more detail.

Thank you, Cary, and good afternoon, everyone. As Cary outlined, the fourth quarter marked the close of the year of stabilization for AVITA Medical, Inc., and the transition into a more execution-focused phase of the business. I will walk through what that execution discipline looks like in the numbers, particularly across costs, cash use, and our balance sheet. Turning first to the full year view for 2025, we reported revenue of approximately $71,600,000, representing 11% growth over 2024. This marked a further consecutive year of revenue growth for the company, and reflects a business that continued to grow despite the reimbursement-related. Full year gross margin was 82.1%, compared to 85.8% in 2024. This decrease reflects certain inventory reserves and impact from product mix and the increased contribution from CoHiliX and PermeDerm. As we previously discussed, while the product mix impacts the reported margin percentage, these products contribute incremental gross profit without a commensurate increase in operating expenses, supporting operating leverage over time. The combination of year-on-year revenue growth and gross margins above 80% provides a solid foundation for us going forward. Turning to the fourth quarter. Total revenue was $17,600,000, compared to $18,400,000 in the prior-year period. This was consistent with our revised revenue expectations and showed stabilization within our business. Fourth quarter gross margin was 81.2%, compared to 87.6% for the same period last year, driven by inventory reserves and product mix. Moving to operating costs, total operating expenses in the fourth quarter were $24,700,000, down 5% year over year. This reduction was driven primarily by lower sales and marketing expenses, reflecting reduced headcount, compensation, and commissions following the commercial transformation earlier in the year. General and administrative expenses were essentially flat, while research and development increased modestly due to planned investments in our PermeDerm and CoHiliX post-market studies. The fourth quarter included $1,200,000 of one-time severance costs, which will not be reoccurring. Excluding these costs, fourth quarter operating expenses were down 10% year over year. For the full year, even with the nonrecurring severance costs included, operating expenses declined by $10,400,000, or 9%, reflecting a substantially lower operating structure going forward. Turning to cash. The key takeaway here is improved control and visibility around cash use. The fourth quarter marked the third consecutive quarter of improvement in net cash use, declining from $10,100,000 in Q2 to $6,200,000 in Q3 and $5,100,000 in Q4. As we look towards the first quarter in 2026, cash use will increase due to the timing of annual compensation and payroll-related items, which is expected and planned for within our operating model. We ended the quarter with $18,200,000 in cash and marketable securities. In January, we refinanced our debt through a new credit facility with Perceptive Advisors LLC. The levels and flexibility in this facility are meaningfully better aligned with our current operating trajectory. Under the new agreement, the revenue and cash covenants provide substantially more headroom. To put that in context, the initial trailing twelve-month covenant of $68,500,000 translates to only $15,400,000 of revenue in Q1 to not trigger the revenue covenant. For the full year 2026, the trailing twelve-month requirement of $73,000,000 is aligned significantly below our 2026 revenue guidance. In addition, the minimum cash covenant has been reduced from $10,000,000 to $5,000,000, significantly lowering covenant risk and reinforcing that the facility was structured to support execution rather than constrain it. The facility is interest-only with no amortization, and includes optional incremental capital if needed subject to meeting a certain revenue milestone. Overall, this refinancing was about simplifying the balance sheet, reducing friction, and removing distraction. From a financial perspective, our priorities for 2026 are straightforward: maintain disciplined control of operating costs, support revenue growth with a stable and scalable cost structure, and continued cash efficiency as revenue increases. Through that financial framework, an improved capital structure, and a clear line of sight into 2026 growth, we believe AVITA Medical, Inc. is better positioned to execute consistently and move towards financial sustainability. With that, I will turn the call back to Cary.

Thanks, David. In summary, the actions we have taken over the past several months have positioned AVITA Medical, Inc. for a stronger and more consistent 2026. We have restored reimbursement clarity, simplified our commercial focus, removed operational friction, strengthened financial discipline, and advanced the clinical evidence underpinning our multiproduct platform. Those actions set the execution milestones we will report against throughout the year. As we move through 2026, our focus is straightforward. Do what we said we would do. Report it clearly. And let execution speak for itself. With that, let's open for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question comes from the line of Ryan

Good afternoon, and thanks for taking our questions, and appreciate all the color and clarity today. On the guidance, David, with the new revenue covenant, how would you have us think about the pace of growth through the year? Is the $15.4 million a good jumping-off point for Q1? Or are you trying to message that that is well below what you can do, and so there is no covenant risk there? I think that would be appreciated. And then I have a follow-up.

Yep. And I am sure Cary may have a couple of things to say also, but the $15.4 million should not be taken as anything around guidance at all, Ryan. What we are trying to do is what you indicated, is say that there is a lot of headroom for the covenant number of $15,400,000. You know, we had $17,600,000 in the fourth quarter. We would not expect to go down that much in the first quarter. We have given guidance of $80 to $85,000,000, and even if you annualize that just over four quarters, you would not get to anywhere close to that $15.4 million number.

So, you know, we are not giving quarterly guidance, as you know. But that $15,400,000 was just to tell everyone that the new debt was structured to take covenant risk off the table, and that is what we have done.

Very clear. Thank you, David. And, Cary—

Sorry. Yeah. Ryan. Hi, Ryan. So, yeah, I would just kind of pile onto that. I think that our jump-off point is Q4. I mean, what we strive to do in Q4 is to kind of normalize and flatten things out in terms of the ordering patterns and our ability to forecast, so we feel good about not only the performance of Q4, but our handle on the business to the point where we were able to, I think, understand Q1. And I think so far, we continue to understand Q1. So I think from Q4 to Q1 and from Q1 through the rest of the year, you should see progressive growth, gradual acceleration. And I think we have a good understanding of our business and more to come on that.

Appreciate that, Cary. And then, if we could spend a minute on the reimbursement dynamics that affected 2025. So it sounds like much of what hampered 2025 with the MACs is behind you. But if you could give us a little more color into the reestablishment of payment from the six of the seven MACs. What do you have now that you can say with certainty, and what is holding up that seventh MAC? Is there anything we need to be concerned about, or is it just something administratively? Maybe you could spend a little bit more talking through what has transpired over the last, call it, quarter and into the first quarter.

Sure. So first of all, we are highly engaged with all seven. I think that we could put these in buckets, meaning we got commitments months ago that they would publish. Then they did publish, and then once they published, it is a matter of kind of hospital by hospital, physician by physician, them becoming aware, and them putting it into practice in terms of getting reimbursed and kind of returning to a clarity that will help us going forward. So that has occurred as each of the MACs kind of came on board. In terms of that seventh one, we are highly engaged with them. That is all I can tell you is that there is no reason to be concerned, just that we are engaged with them in a process and in their process, and we are hopeful and expect that they will publish as well.

Okay. Thank you. Thanks for taking my questions.

Sure. Thanks, Ryan. Thanks, Graham.

Thank you. One moment for our next question. Our next question comes from the line of Joshua Thomas Jennings of TD Cowen. Your line is now open. Hi, congratulations on all the progress and the refinancing, and great to see the six of seven MACs have established payment rates. I wanted to just ask about, first, can you share with us just a core customer experience where CoHiliX and PermeDerm have made it through the VAC process? And are you seeing signals, or what signals are you seeing that give you confidence that they ultimately can be strong CoHiliX and PermeDerm attachment rates in ReCell cases.

Yeah. I mean, I think—thanks, Josh. I think the process is that we have a champion in some of these accounts for PermeDerm and/or CoHiliX, and we work with them from a clinical perspective, economic perspective, to help them understand the value. And then it is put into VAC, and that champion helps move it along, and the idea is that once it comes out of the VAC, that that same champion then starts to push it into the department and into their practice. So we have seen that in a few of the VACs where those products have exited. And so that has been effective in terms of us getting some uptake out of the VAC.

Excellent. And is there kind of an all-star account where CoHiliX and PermeDerm made it through that VAC process and you are seeing nice attachment rates in ReCell cases?

Well, no. I probably cannot point to one right now, but I would say that when we were at the Boswick Burn conference, as I said in my comments, there were a couple presentations from physicians that used all three of the products, ReCell, CoHiliX, and PermeDerm. And I think that, again, is early days in terms of someone using all three of those, but I think we will be able to report out more going forward as these products come out of the VAC and as they begin to be used in conjunction with each other.

Understood. And you still have CoHiliX-one, PermeDerm-one study data to help with that utilization trajectory. And just ultimately, do you see CoHiliX and PermeDerm adoption driving increased demand for ReCell as well? I mean, I have been thinking about ReCell pulling through CoHiliX and PermeDerm, but down the line, could CoHiliX and PermeDerm get you into more accounts or just drive utilization higher in the near 200 trauma/burn center base?

Yeah. I mean, it is a good question. I think ReCell is the established brand. It is the product that has been around the longest. But, ultimately, we have relationships in these accounts. We have physicians that are using ReCell that I think are at least drawn and open to the discussion around CoHiliX and PermeDerm because of the relationship we have and because of their affinity for ReCell. But you are right. I think that those physicians that may not be using ReCell or even institutions that may not use ReCell, if they are drawn to CoHiliX or we end up really making some progress there, of course, it allows you to make a connection and establish a relationship there and have the dialogue around treatment and care that could lead to a ReCell discussion as well.

Excellent. And maybe just lastly, with some of the turbulence around MACs and payment rates for ReCell, just as you start to see adoption and utilization of CoHiliX and PermeDerm over the course of 2026, just review the reimbursement pathway. I think there is a clear pathway, and there are not going to be any hurdles, but just to check that box, if you could lay that out for us, that would be great. Thanks for taking all the questions.

Yep. I mean, again, I think you are correct. We have had to deal with these physician payments through the MACs over the last year, but we do not expect any other disruptions to that process going forward, other than continuing to work through these in the months to come.

Great. Thank you.

Thanks, Josh. Thank you. One moment for our next question. Our next question comes from the line of Ian Arndt of Lake Street Capital Markets. Your line is now open.

Hey, thanks for taking the question here. I was wondering if you could break down the primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus contributions from the CoHiliX and PermeDerm launches.

Would you mind repeating that? It is a little bit quiet. Hard to hear that question.

Yeah. Sorry about that. Wondering if you could kind of break down primary drivers of growth supporting your 2026 guidance. Specifically, how much is predicated on the recovery in base ReCell volumes versus new contributions from CoHiliX and PermeDerm launches?

Yeah, thank you. It will be mixed. I mean, we expect growth in all three product lines, and we expect most of that to be driven by increased utilization within existing accounts, whether that is additional physicians or additional types of procedures. So we see that trajectory in terms of utilization and have that plan in place. And so we expect all three product lines to grow, and we expect them to grow mostly within existing institutions where we have relationships going forward throughout the year.

Okay. Thank you. That is very helpful. And I have a quick follow-up if that is okay. In the third quarter, you noted that roughly one third of your target accounts were in the VAC review for CoHiliX. Could you provide an update on the conversion rate of those reviews and the active ordering accounts? Are you seeing any specific bottlenecks in the process?

Any significant—am I seeing—currently, we have—I am sorry. Currently, we have—how many in CoHiliX VAC? Was that your question?

Yeah. Just based off of the comments from the second quarter. If you could give an update on the conversion rate of those reviews that are now active ordering accounts. Are you seeing any bottlenecks in the process, or could that delay the 2026 growth?

Yeah. So, without just giving a number, I would say that they continue to come out of CoHiliX VAC at a kind of a steady rate, and we would expect that over the next, I would say, six to nine months even. And so as they come out of the VAC, they are starting to order product. And so for us, that is going to be a continual kind of week-by-week, month-by-month, quarter-by-quarter process of anticipating and understanding that they will come out of the VAC and when they do, get them to order sooner, larger, faster, and to have a very positive experience with it, obviously, as well, and to develop more than just that one champion in the account so that it can broaden and deepen. But what we are not seeing in the VAC is bottlenecks other than administrative bottlenecks. It is just they go through their process, and there is no set time. It depends on the account. And we provide them with all the clinical or economic to make the argument that it should successfully go through the VAC. So we have not seen, you know, denials through the VAC really. But it is a process that takes some time. And we have seen that.

Okay. That was very helpful. Thank you. Thanks for taking the question.

Thank you.

Thank you. This concludes the question-and-answer session. I would like to turn it back to Cary Vance for closing remarks.

Thank you, operator. Thank you to everyone else who has joined us today as well. I look forward to updating you on the progress in the quarters to come. Thank you. Have a good rest of the day.