Avita Medical, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, operator.

Welcome to AVITA Medical's second 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. As you saw in our press release today, we delivered strong revenue growth in the second quarter of $21.7 million, up 18% year-over-year and 13% sequentially. As AVITA continues to expand in the U.S. and build its presence in key international markets, our results reflect the growing utility of our acute wound care portfolio, led by RECELL and supported by Cohealyx and PermeaDerm. In the U.S., RECELL generated $18.5 million in revenue during the second quarter, growing approximately 13% sequentially from the prior quarter. This growth reflected physician utilization following physician reimbursement stabilization, together with increasing adoption of RECELL GO mini, which continues expanding use in smaller wounds. I'll add a little more color on RECELL later in my remarks. Internationally, revenue from RECELL increased approximately 26% sequentially over the first quarter.

We continue to commercialize RECELL GO following regulatory authorizations in Europe, the U.K., Australia, and New Zealand. As adoption builds, clinicians are also beginning to share their early clinical experience. During the quarter, the British Burn Association annual meeting featured the first U.K. clinical experience with RECELL GO, reporting successful treatment of 17 patients while highlighting improved operating room workflow. While international revenue remains a smaller contributor today, these milestones continue building the foundation for long-term growth alongside our large U.S. opportunity. Cohealyx generated $1.7 million, representing approximately 16% sequential growth. We're encouraged by the steady progress we're seeing as hospitals complete their value analysis committee, or VAC reviews, and begin incorporating Cohealyx into clinical practice. We continue to maintain a healthy pipeline of approximately 55 active VAC reviews, with 10 to 15 reviews typically completed each quarter, driving a steady increase in ordering accounts.

The interim Cohealyx-I clinical data presented earlier this year supports those dynamics by providing hospitals and surgeons with comparative clinical evidence. The study demonstrated substantial faster time to skin graft readiness compared with leading dermal matrices. Later this year, we expect to submit the complete six-month follow-up data set for publication, providing additional evidence of long-term durability. PermeaDerm generated $600,000 in revenue during the quarter. Commercial adoption remains in its early stages. We are encouraged by the initial response following our recent positioning of PermeaDerm as a wound temporizer, providing clinicians with an alternative to allograft to temporarily stabilize and protect the wound before definitive closure. To further support that positioning, we expect results from our PermeaDerm I clinical study later this year. As a reminder, this post-market study evaluated PermeaDerm as a clinically comparable, lower-cost alternative to allograft. Today, 25 hospitals have experience using all three AVITA Medical products.

Some are already regularly incorporating the full portfolio into clinical practice, while others are still evaluating where each product best fits within their treatment pathway. That is what we would expect at this stage of adoption of our new products, and it gives us confidence in the opportunity to grow utilization of our full portfolio within our accounts. Since becoming CEO last October, my objective has been straightforward: to build a business that consistently delivers growth quarter over quarter, year over year through disciplined commercial execution. Looking back over the first half of 2026, I believe we have demonstrated that objective in action. We have delivered consecutive quarters of sequential growth, broadened adoption across our portfolio, and we continue to improve the financial profile of the company. That progress gives us greater confidence in where the business is headed, and today we are updating our outlook accordingly.

First, we are raising our full year 2026 revenue guidance to a range of $86 million to $89 million, representing growth of 20%-24% over 2025. Second, we are introducing new guidance to achieve cash flow breakeven and begin generating cash during the fourth quarter of 2026. Reaching that milestone is an important step in AVITA Medical's evolution. It reflects not only stronger revenue growth, but also the operating discipline and cash generation that David will discuss in more detail.

Thank you, Cary. Good afternoon, and in Australia, good morning. I will use my prepared remarks to look at how our strong commercial performance is flowing through the business, particularly across operating leverage, cash generation, and our path to cash flow breakeven. Turning to the financials on slide four, let me start with revenue. As Cary indicated, revenue increased approximately 18% year over year and 13% sequentially from the first quarter to $21.7 million, crossing over $20 million in revenue for a quarter for the first time in our company history. With this sequential revenue growth for the second quarter and $41 million in revenue for the first six months of 2026, we are increasing our revenue guidance for 2026 from $80 million to $85 million to now $86 million to $89 million.

This will represent growth for this year from the $71.6 million in revenue in 2025 in a range of approximately 20%-24%. Turning to gross margin. Gross margin increased to 81.9% compared to 81.2% in the prior year quarter, and remained above 81% year to date despite continued growth in our newer products. As we've discussed previously, while changes in product mix modestly impact reported gross margin percentage, Cohealyx and PermeaDerm contribute incremental gross profit without a proportional increase in operating expenses. Resale gross margin remains strong at approximately 86%. Resale growth provides a tailwind for reported gross margin that offsets the impact of product mix as Cohealyx and PermeaDerm become a larger part of the business. Looking at operating expenses. Operating expenses were $24.6 million, essentially no change to the first quarter, and approximately 6% lower than in the same period in 2025.

Importantly, this demonstrates the benefit of the commercial operating structure we established during the second quarter of 2025, capable of supporting continued commercial growth without requiring a corresponding increase in operating expenses. Looking ahead for the rest of 2026, we continue to identify opportunities to further reduce operating expenses while continuing to support our commercial priorities. This quarter, operating loss and net loss improved to $6.9 million and $7.7 million respectively, compared to $11.1 million and $9.9 million respectively in the same period last year. The second quarter operating and net loss showed significant improvements from the quarterly losses we have generated in the past. Turning to cash, which remains one of our highest priorities. As we discussed during our first quarter call, we expected cash use to improve significantly during the second quarter as seasonal payments normalized, collections improved, and revenue continued to scale. That's exactly what happened. Net cash use improved to approximately $3.2 million during the quarter, representing a major improvement from the first quarter and from the quarterly cash burn each quarter last year.

We ended the quarter with approximately $11.1 million in cash equivalent, and market securities. As I look at the trajectory of our numbers indicated in the green boxes on this slide, I see a financial model performing as expected and in alignment with our growing revenue. As Cary mentioned earlier, we are also introducing new guidance for our cash flow outlook. That confidence of reaching cash flow breakeven is supported by three financial trends that are now working together, illustrated here on slide five. First, revenue continues to scale. We've now delivered two consecutive quarters of meaningful sequential growth, 9.7% and 13% respectively, and we've raised our full year revenue guidance.

Second, we've maintained high gross margin above 81% while growing our portfolio over multiple quarters. Third, we've maintained disciplined control of operating expenses and optimized our cash conversion cycle. Essentially, we are spending less money to run the business and collecting cash faster from our operations. Taken together, those trends give us increasing confidence that AVITA is approaching an important financial inflection point. As the business continues to scale, we expect a further reduction in cash use during the third quarter before achieving cash flow breakeven and beginning to generate cash during the fourth quarter of 2026. Turning to slide six, our updated outlook reinforces our confidence that the balance sheet remains aligned with the next phase of the company's growth and funded through this transition to cash generation.

We continue to operate well within the requirements of our credit facility, which was intentionally structured to support the business through this stage of commercial expansion. As revenue continues to build, the Perceptive debt facility also provides access to an additional $10 million tranche once trailing 12-month revenue reaches $85 million, providing additional financial flexibility as we transition towards cash generation. In summary, we're delivering commercial growth, maintaining strong gross margin, exercising control of operating expenses, and significantly reducing our use of cash. Together, those trends support our confidence in the increased revenue forecast we share today and our path towards cash generation. Today's results also reflect strong execution across the organization. Commercial, operations, and corporate teams have worked together exceptionally well to scale the business while maintaining financial discipline. I'd like to thank everyone across AVITA for their commitment and execution during the first half of the year.