AVITA Medical, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to AVITA Medical Inc. First Quarter 2026 Earnings Conference Call. (Operator instructions were provided to participants.) Please be advised that today's conference is being recorded. I would like now to turn the conference over to Ben Atkins. Please go ahead.

Thank you, operator. Welcome to AVITA Medical's First Quarter 2026 Earnings Call. Joining me on today's call are Cary Vance, President and 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. Before we turn to the quarter, I want to briefly acknowledge my appointment as President and Chief Executive Officer. Over the past six months, I've had the opportunity to serve in this role on an interim basis, working closely with our team, our customers and the Board. I appreciate the confidence the Board has placed in me following a thorough search process and I'm excited to lead AVITA into this next phase. I'd also like to recognize our new Board Chair, Jan Stern Reed. Jan has been deeply engaged with the company, and I look forward to working closely with her and the Board as we continue to execute on our priorities. Over the same period, I've spent time visiting the hospitals using our products, and speaking with surgeons. What's clear to me is that this is not an abstract business. When you're in the operating room, you see firsthand the partnership we have with surgeons and the role our products play in helping patients recover and return to their lives. That is what drives our mission. Turning to the first quarter. I'll start by briefly connecting the quarter to where we've been because the progression over the past couple of quarters is relevant to understanding what you're seeing in Q1. Over the past two quarters, we've been focused on two specific priorities: first, stabilizing the business. That meant working through the disruption to clinical reimbursement for RECELL, reengaging our core accounts and reestablishing a consistent procedure-based demand cadence. Second, improving how we operate. We simplified our focus around our highest value centers, reenergized our sales organization and put in place a new credit agreement with terms that are better aligned to the business and our expected revenue trajectory. Q1 has been the quarter where we have begun to see those changes translate into more consistent performance. Let me begin with the headline results. As you saw in the press release, and as reflected on this slide, revenue was approximately $19.3 million, up 4% year-over-year and approximately 10% sequentially. Building on the momentum we saw exiting Q4 and representing our highest quarterly revenue over the last year. David will walk through the full financials in more detail. But importantly, operating expenses declined year-over-year, reflecting the cost-saving actions we implemented in the second quarter of 2025, and we are reaffirming full year guidance of $80 million to $85 million. We also saw continued progress across the business and advancement across our product portfolio. I'll speak to these during my remarks. As we think about the quarter, there are three points I would highlight. First, the year-over-year comparison is still influenced by prior ordering patterns. The business a year ago included more bulk purchasing behavior that we no longer see today. Second, sequential quarter-over-quarter performance is a better indicator of underlying demand. Revenue increased approximately 10% from Q4 with product demand building momentum through the quarter and continuing into April. Third and most important is how the operating cadence is improving. We are seeing more frequent, smaller orders, better alignment between usage and purchasing and improved engagement across our core accounts. This reflects a shift away from past variability towards consistency and ultimately, predictability going forward. Let me now go through some dynamics across our portfolio. Turning first to RECELL. At this point, all seven Medicare Administrative Contractors have published payment rates for clinician use. What we are seeing as a result is a gradual return to utilization patterns that reflect procedural demand rather than reimbursement uncertainty. That shows up in both reengagement within the most affected burn centers and sequential quarterly improvement in ordering and case activity. We are also beginning to see expansion in use cases, particularly with RECELL GO mini and smaller burns and trauma settings. Internationally, recent regulatory clearances in Australia and New Zealand position us to expand RECELL GO in those markets. In addition, during the quarter, we announced a new long-term agreement with BARDA to support U.S. burn emergency preparedness. This builds on a long-standing partnership and reflects the role RECELL can play in a mass casualty response, where rapid treatment and scalability are critical. From a business perspective, this provides a modest level of recurring readiness revenue while also reinforcing the importance of RECELL within the broader health care system. More broadly, it underscores the clinical relevance and reliability of the platform in high-acuity settings and the confidence of a key government partner in our ability to deliver at scale. So stepping back, RECELL remains the foundation of the business and is again a driver of utilization as we build across our accounts. Next, let me turn to Cohealyx. From a commercial standpoint, Q1 represents early stage adoption with encouraging signals. We saw, for example, an increasing number of ordering accounts as Value Analysis Committee approvals advance and early repeat usage by initial adopters. This is consistent with what we would expect at this stage of a product life cycle. An important development in the quarter was the interim clinical data from the Cohealyx-I study. At a high level, the data shows a significant reduction in time to graft readiness, approximately 20 days versus benchmark with consistent outcomes across patients. We also saw a median time to grafting of approximately 11 days. Early grafting achieved in some cases within the first week and high levels of investigator satisfaction. Importantly, this data set is now supporting ongoing VAC reviews, helping to reinforce the clinical value proposition as hospitals evaluate adoption. We also continue to hear positive feedback from clinicians already using Cohealyx, particularly around the consistency of outcomes, which is contributing to early repeat use. We expect the full data set later this year, which will be an important next step in supporting broader adoption. I would encourage you to listen to the key opinion leader webinar we hosted in April, available on our website. That session walks through the data in more detail and illustrates how Cohealyx is being integrated into surgical workflows, including its use alongside RECELL in staged procedures. Finally, touching on PermeaDerm. From a commercial standpoint, performance is still developing. This quarter, we introduced new clinical positioning relative to cadaveric allograft, focused on its role as a more affordable biosynthetic alternative in wound coverage and healing. We expect data from the PermeaDerm-I study later this year; early signals, including histology, indicate comparable biological performance to cadaveric allograft. So similar to Cohealyx, the near-term role of PermeaDerm is to build clinical confidence, clear positioning within the treatment pathway and familiarity among surgeons. We had a strong presence at the American Burn Association Annual Meeting in April, which remains the most important clinical and commercial forum for our business. What stood out this year was the level of engagement across the portfolio. We saw broad scientific participation, meaningful clinical interaction across multiple forums and increasing discussion around how our products are used together in practice. Importantly, this was not just awareness, it was active clinical dialogue including education, case sharing and feedback from surgeons. The takeaway from this year's ABA Conference is that we are seeing growing clinical engagement and increasing integration into clinical discussions and workflows, supported by both data and real-world experience. In summary, over the past two quarters, we've stabilized the business and improved how we operate. What we're now seeing is a return to more consistent utilization across our accounts with early signs of growth as that foundation takes hold. At the same time, the momentum we saw at ABA, together with the Cohealyx clinical data, reinforces the clinical differentiation and value of our platform. As we look ahead to Q2, our focus is on continued sequential growth, driven by increasing utilization across our core burn and Tier 1 trauma accounts and demonstrating our progress is repeatable. With that, let me hand to David to review the financials in more detail.

Thank you, Cary, and good day to everyone. As Cary outlined, the first quarter reflects continued progress as we move from stabilization into a more execution-focused phase of the business. My prepared comments today will focus on how that progress is showing up in our financial results across revenue, gross margin, operating expenses and cash. Turning first to revenue. Total revenue for the first quarter was approximately $19.3 million, representing 4% growth year-over-year and approximately 10% sequential growth from the fourth quarter of 2025. Growth in the quarter was driven by contributions from Cohealyx, RECELL GO mini and improving RECELL utilization as reimbursement dynamics continue to normalize. Importantly, we are seeing ordering patterns increasingly aligned with underlying procedural demand. This is contributing to improved consistency in revenue with sales performance strengthening through the quarter and showing momentum as we exited March. With our Q1 results, we are reaffirming our full year 2026 net revenue guidance of $80 million to $85 million. Turning to gross margin. Gross profit margin for the quarter was 81.7% compared to 84.7% in the prior year period. The change was primarily driven by certain required inventory reserves and product mix with Cohealyx and PermeaDerm contributing a greater proportion of revenue. As we've discussed previously, while this shift in product mix impacts reported gross margin percentage, these products contribute incremental gross profit without a proportional increase in operating expenses. As a result, they remain accretive to absolute gross dollars and supportive of operating leverage over time. Consistent with the framework we outlined with our broader portfolio coming out of 2025, RECELL gross margin remained strong at approximately 85% and we expect that to continue. Turning to operating expenses. Total operating expenses were $24.5 million, down 11% year-over-year. This reflects continued execution against the cost optimization initiative, including transformation of the sales force implemented in 2025 and reinforces that we are operating with a lower and more disciplined cost base. Importantly, this structure is now stable and aligned with the current scale of the business. As revenue grows, we expect this to support improved operating leverage. Net loss for the quarter was $10.6 million or $0.35 per basic and fully diluted share and an improvement compared to $13.9 million or $0.53 per basic and fully diluted share in the prior year period. Now turning to cash, which we recognize as a key focus. Net cash used for the quarter was approximately $9.9 million. As expected, cash use was higher in the first quarter driven by seasonal compensation and other one-time payments and was further elevated by the timing of revenue and collections. Cash receipts obviously lagged revenue and with a greater proportion of product sales occurring later in the first quarter, our cash receipts were negatively impacted, which increased our cash use. As we move into the second quarter, these timing dynamics have reversed. Seasonal and one-time items are completed and collections from strong late first quarter revenue and early second quarter sales activity are driving higher cash receipts. Combined with ongoing cost discipline, this gives us strong confidence in a significant decrease in cash used in the second quarter. We ended the quarter with approximately $14.3 million in cash and marketable securities. Regarding our debt facility, we remain in compliance with the trailing 12-month revenue and minimum cash covenants under our credit facility which are aligned with our current operating trajectory. Importantly, this facility put in place in January with Perceptive Advisors was structured to provide greater flexibility than our prior credit agreement, with covenant thresholds set meaningfully below our expected annual revenue levels and a reduced minimum cash requirement. Given the level of headroom, we would not expect the revenue covenants under this agreement to be an area of focus going forward. For context, the second quarter trailing 12-month revenue covenant of $69 million implies a second quarter revenue requirement of only $15 million, which remains well below our recent quarterly revenue levels. The structure is interest-only and includes additional capacity subject to achieving a defined revenue milestone. Taken together, these terms were designed to support execution rather than constrain it, providing improved visibility and headroom as we scale the business. As a result we believe our current capital structure is well aligned with our operating plan that supports our ability to manage the business for continued growth, improved cost efficiency and ultimately, financial sustainability. In summary, we are seeing sequential quarterly revenue growth with an improving demand consistency, a stable and disciplined operating cost structure and clear visibility to lower cash use as we move into the second quarter. These elements reflect continued execution against the framework we established in 2025 and reinforce our focus on delivering consistent and repeatable performance through the year. With that, I'll hand it back to Cary.

Thank you, David. So just to summarize the first quarter, we delivered a solid revenue performance in Q1, supported by improving RECELL utilization. We exited the quarter with increasingly consistent procedure-driven demand across our core accounts. We generated compelling Cohealyx clinical data reinforcing its differentiation over other dermal matrices. And we strengthened our leadership as we shift gears into this next phase of our AVITA journey. As we look ahead to Q2, the focus is clear: build sequential growth and demonstrate recurring progress across our business. With that, let's go to questions.

(Operator instructions were provided to participants.) And our first question comes from Frank Takkinen with Lake Street Capital Markets.

Congrats on a solid Q1. I was hoping to start with a question more on composition. I don't know if you'll go as far as sharing the breakdown between RECELL and Cohealyx, if you would, that would be great. If not, maybe a backup question would be just speaking to maybe which one was a stronger driver of growth? Was it a rebound in RECELL or Cohealyx coming up the curve pretty quickly?

We're not going to break it out yet. It was a combination of the two, Frank. We grew in RECELL and we grew in Cohealyx. Those are the two main drivers.

Okay. That's helpful. In the prepared remarks, I think you made a comment of Q2 sequential growth continues to be expected. Can you maybe talk to that a little bit more? And then, obviously, the quarter was a little ahead of where Street expectations were and understand the appetite to put out expectations you can achieve. But maybe talk through how you guys thought about maybe taking the guide up a little bit, just given how well it seems the recovery is going in Q1.

Right now, we're sticking with the guidance. This is a business that builds on itself. A lot of the work that we did even in the latter part of 2025 brought us the results in Q1. I expect that work to continue. There was a lot of progress behind the scenes, beyond bringing in orders and revenue. There were hospitals that came out of VAC around Cohealyx. So there's a lot of progress behind the revenue number. We expect to be able to retain that kind of progress that we had in Q1 into Q2 and capture three months of it as opposed to maybe a month or two of it when we got a new physician or new procedures on board in Q1. We expect that to build on itself quarter-over-quarter. We'll provide more updates in a few months.

And the next question will come from Ryan Zimmerman with BTIG.

Cary, David, congrats on the progress. Just to put this behind us, Cary, on the MAC dynamics. I appreciate you sharing that the seven MACs are now publishing rates. I just want to confirm though, beyond the published rates, the seventh MAC that you were waiting on, everyone is now fully reimbursing for RECELL at this point, correct?

That's correct. They've all published and there was one MAC where the rate was below the others. They've brought that rate up in line with everyone else.

Okay. That's very helpful and really good to hear. I want to follow up on BARDA, but first you made comments about utilization and growing adoption in smaller burns. Could you elaborate on what's driving that? Are you explicitly targeting lower TBSA burns because they are more frequent? That would suggest doctors are becoming more comfortable with the RECELL device. Could you speak to that? And I have one quick question on BARDA.

We are trying to make RECELL available for every wound and every size burn. The question for clinicians is whether it's worth it economically and in terms of time and workflow. Clinically, we're showing and convincing more clinicians that the impact on healing and pigmentation is worth it for the patient. The RECELL GO mini, which is less expensive and designed for smaller wounds, combined with the economic impact of reduced length of stay and faster healing, is starting to resonate. We're addressing objections through technology, data and economic and clinical evidence.

Okay. Last one, maybe more for David, but the BARDA contract, I think it's up to $25.5 million in potential revenue. I think $3.5 million, if I'm not mistaken, is guaranteed. So David, how are you thinking about that coming through when it comes through? Any guidance would certainly be helpful there? Appreciate it.

What's guaranteed is around $3.9 million over 10 years. That is amortized per month over those 10 years. You can pretty much assume that it's going to be about $100,000 per quarter, roughly $30,000 or so per month, and it is billed on a monthly basis. So that cash comes in during that 10-year period. The rest of it is only if there's a mass casualty. We are required to have safety stock on hand, but that essentially equates to our safety stock anyway. It's not an increase in cost to have that safety stock that fulfills our BARDA requirements.

The next question is going to come from Chris Kallos with MST Financial.

Just a quick question. Regarding the guidance, in terms of the multiple moving parts now with the product mix, what would be the drivers that you'd be looking forward to maybe for us to expect the company coming at the high end of guidance for the year. In light of the Cohealyx data and the rest, what should we be aware of?

We have one quarter under us, and while I and the team have a good sense of confidence—after six months into the role—it's still just a quarter. For us, it's a matter of seeing progress throughout the course of the year. That will give us a better level of confidence and sight into where we would expect to finish the year. My expectation is we will be as transparent as we can be about how we're progressing and what we expect, and we will report out accordingly.

Great. And just a follow-up question regarding the smaller purchases that are coming through at the moment, can you maybe relate that to—has that been a result of a change in strategy in the sales team and/or headcount? Maybe a comment on that.

We want customers to order in a way that is convenient for them in terms of how much they stock and how often they use it. We're responding to them. We are not pushing our own agenda for larger orders. What I like is it becomes very consistent and predictable. Through weekly forecasting exercises, we're becoming very good at understanding how our customers buy and predicting how they will buy in the coming weeks and months. We wouldn't do it that way if our customers didn't want it that way. It's a combination of letting them order how they want and having a process that helps us be very predictable.

And just one last question for David. David, in terms of cost-outs have we reduced the costs as much as possible? Should we expect the cost line to stay stable from here on?

We have stabilized the cost structure. The one variable I hope goes up is commissions because that will be an indicator that we're having more revenue. But from a G&A, R&D and headcount perspective, our cost structure is where we want it to be.

(Operator instructions were provided to participants.) The next question comes from Josh Jennings of TD Cowen.

Congratulations again, Cary, on getting the interim tag removed from your CEO title. I was hoping to just start off—on MAC, you described the progress of seven MACs publishing. Can you help us just think about physician confidence and burn center confidence in terms of getting reimbursed for RECELL? Where are we in that recovery on the physician and center confidence front that they'll get reimbursed?

I'd say 75% is probably a good number. There's the official MAC situation and then there's the education and communication that needs to take place to make sure we're back to where we were over a year ago. Right now, we're working hospital by hospital with our health care access team and commercial teams to ensure they understand reimbursement and how to work through the process. We are helping with the education and communication that ideally would have been done earlier had the MAC issue not come up. Now that it is officially cleared up, we're focused on hospital-level outreach.

Coming out of ABA with the Cohealyx update, there seems to be more buzz around that product. Can you put a finer point on traction, surgeon feedback and any updates on the number of centers that are starting to use the entire portfolio—RECELL, Cohealyx and PermeaDerm—and seeing initial traction from the portfolio build-out?

We're in the 20s in terms of centers using all three products. On our website there's a webinar from ABA where Dr. Katie Bush and two of our physicians discussed day-to-day use, utilization and workflow of Cohealyx and PermeaDerm as well as study results. Both data and practical use matter. There's a substantial amount of buzz from ABA and the preliminary study release. I think it helps with VAC committees and provides acceleration. Cohealyx competes well with other dermal matrices and has some advantages. We want to get it out there and compete. In order to do that we need data and practical use cases; both will help. It's palpable and exciting. I expect to see 12 to 15 VACs come out for Cohealyx every quarter. We still have about 55 to 60 in VAC. As some come out, others may go in, which is positive because it means broader adoption across burn centers and Level 1 trauma centers over time.

Thank you. I'm showing no further questions in the queue at this time. I will now turn the call back over to Cary for closing remarks.

Thank you, operator, and thank you to everyone for your time and support today. We look forward to continued engagement and discussions with all of you in the coming days and weeks, and we look forward to another great quarter. Thanks, everyone.

This concludes today's conference call. Thank you for participating, and you may now disconnect.