Avita Medical, Inc.

Good day, and thank you for standing by. Welcome to the Evita Medical, Inc., third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. 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 Carrie 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 send the call over to Kerry. Good afternoon in the US 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 Aveda's mission to transform acute wound care possible. I've been with Aveda as a board member for the past two and a half years, and now, stepping into the interim CEO role, I see the company with new eyes, but also with deep conviction. Aveda'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 four-year revenue in the range of $70 million to $74 million, down from our prior guidance of $76 to $81 million. As a reminder, in January, new Category 1 CPT codes for the use of resale 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 resale procedures. As a result, Many providers were unsure when or how claims for resell procedures would be paid. The good news is that significant progress has been made. As of today, all seven MACs have now published or confirmed acceptance of provider reimbursement rates, providing clinicians with clarity and confidence of payment when using resell. 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, resale'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 resale to optimize healing, reduce donor site burden, and shorten hospital stays. Inclusion of the CPT college for the resell 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 resell 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 Resell 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 Resell a standard point of care. I can also share that since Resell 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 resale 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. but 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, to 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. Resell, Cohelix, and Permioderm 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, onto 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, territory, 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 Aviva'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, the 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 a 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 Clark's 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 resale returned, our commercial organization has a focused plan to re-engage accounts that lowered their use of resale. 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 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 clearer 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. Resell, Cohealix, and Permiaderm 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 we care for them. We've already talked about resale, the anchor of our portfolio, and our foundation for growth. Let me turn now to our complementary products, Cohelix and Permioderm, both of which extend our reach across the acute wound healing continuum. Cohelix continues to emerge as a complementary growth driver. Act submissions are underway in roughly one-third 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 COHELIX-1 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. Permiaderm also continues to perform well as a versatile biosynthetic dressing that complements both re-cell and co-helix across the wound healing continuum. We're encouraged by the early results from our Permiaderm-1 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 Orbitment 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 discipline cost control while continuing to support our operations. While Q3 marked a transition for Aveda, 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, resale, cohelix, and permioderm 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, Kerry, and good afternoon, everyone. As Kerry described, the third quarter was an inflection point for Aveda. 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 enter 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 30th, 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, growth 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 seven regional MACs have published or confirmed provider reimbursement rates, this peels away a barrier to provider use of resell and support the return to growth in resale 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 resale 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 Cohelix and Permiaderm to overall revenue and other inventory-related adjustments. When isolating the resale franchise, gross margin remained strong at 83.6%, which we expect to sustain going forward. As a reminder, our average sales price share for Cohelix and Permiaderm 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 non-cash charge of $2.2 million related to the issuance of 400,000 shares of common stock to Orbamed 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 a 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 OrbitMed, as of September 30th, we secured a waiver for our third quarter revenue covenant under the OrbitMed 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 AVIDA 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 resale. 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 onto patients. 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 Kerry. 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. Aveda 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.