AVITA Medical's Q3 2025 Earnings Call: Contradictions Emerge on Forecasting, Sales Incentives, ReCell Adoption, and Expansion Strategy

Date of Call: None provided

Financials Results

• Revenue: $17.1M in Q3 2025, down 13% YOY (Q3 2024: $19.5M); full-year 2025 revenue guidance revised to $70M-$74M (prior $76M-$81M)
• EPS: Net loss $13.2M, or $0.46 loss per basic and diluted share, improved ~19% YOY from $0.62 loss per share in Q3 2024
• Gross Margin: 81.3%, compared to 83.7% in Q3 2024 (ReCell-isolated margin 83.6%)

Guidance:

• Full-year 2025 revenue revised to $70M–$74M (prior $76M–$81M)
• All seven MACs have published/confirmed reimbursement; utilization expected to normalize progressively through coming quarters
• 2026 revenue and capital guidance to be provided in early Q1 2026
• Conserving cash and maintaining disciplined cost control while targeting a path to cash‑flow breakeven as revenue grows

Business Commentary:

* Revenue Impact and Recovery: - AVITA Medical reported approximately $17 million in revenue for Q3 2025, below expectations and reflecting ongoing reimbursement disruption. - The decline was primarily due to reimbursement uncertainty and delays in provider use, but with all seven MACs now publishing provider reimbursement rates, utilization is expected to normalize progressively.

• Reimbursement Clarity and Demand Resurgence:
• AVITA's strategic focus is on rebuilding order momentum with the resolution of reimbursement uncertainty.

• With published reimbursement rates, the company anticipates renewed demand, as providers have clarity on payment for ReCell procedures.

• Commercial Organization Realignment:

• The company initiated a refining of its commercial organization, aligning structure, territories, and accountability around high-value accounts.

• This realignment is aimed at improving focus, customer behavior visibility, and coordination between sales and clinical teams to drive consistent utilization.

• Product Portfolio Expansion:

• AVITA is emphasizing the adoption of its complementary products, Cohelix and PermeaDerm, alongside its core ReCell product.

• VAC submissions for Cohelix are underway in roughly one-third of target accounts, with approved accounts expected to order and build steady utilization over the coming quarters.

• Cost Management and Financial Discipline:

• The company reduced operating expenses by $7.2 million (24%) year-over-year, with a focus on disciplined cost control and maintaining investments for growth.
• This restructuring allows AVITA to support operational and growth plans while maintaining cash flexibility.

Sentiment Analysis:

Overall Tone: Neutral

• Management called Q3 "challenging" but emphasized that reimbursement clarity (all seven MACs published) and early signs of renewed demand restore provider confidence; they revised 2025 revenue to $70M–$74M while highlighting cost reductions, cash conservation, and expectation that utilization will "normalize progressively" into future quarters.

Q&A:

• Question from Ross Osborne (Cantor Fitzgerald): Could you explain the initiatives you’re taking to improve forecasting and how you’re thinking about forecasting approaching 2026?
  Response: Implementing rep- and customer-level modeling with improved sales support and leadership oversight; recent months of data and reorganized commercial structure should smooth month-to-month and quarter-to-quarter forecasting.

• Question from Ross Osborne (Cantor Fitzgerald): How should we think about balancing resources launching in Europe versus getting the U.S. business back to steady?
  Response: U.S. is the primary focus; Europe will be approached with limited, targeted distributor resources in select markets and will not distract from U.S. recovery.

• Question from Josh Jennings (TD Cowen): With MACs issuing finalized pricing, how do you envision the recovery timeline and provider confidence—could early 2026 be back to baseline?
  Response: MAC publications and adjudication of claims back to January will rebuild confidence, but recovery will be gradual with some lag into early 2026 as accounts are educated and begin to use ReCell again.

• Question from Josh Jennings (TD Cowen): Any update on VAC approvals for Cohelix and how many accounts may be approved by start of 2026?
  Response: About one-third of target accounts are in VAC review and roughly two-thirds of those are scheduled to exit VAC in Q4 (acknowledging possible slippage); field teams are preparing to minimize time from approval to ordering and use.

• Question from Josh Jennings (TD Cowen): Are you seeing signals from accounts that have all three products (ReCell, Cohelix, PermeaDerm) approved and using them—evidence of portfolio synergies?
  Response: Some accounts are approved for and using all three products, but it's early and too soon to quantify synergies; the company will track this as a KPI and report later.

• Question from Ryan Zimmerman (BTIG): Given the current cash profile, is more right-sizing required or are you satisfied with the current cost structure?
  Response: Management believes the organization is appropriately lean with no further reductions planned; focus is on disciplined cash use and revenue-driven recovery rather than additional cuts.

• Question from Chris Carlos (MST Access): Are you changing the sales incentive structure toward a portfolio-sales approach versus medical detailing?
  Response: Compensation plans are under review; they will be made simple, fair, and aligned to drive growth and portfolio objectives in 2026.

• Question from Chris Carlos (MST Access): Does the current guidance factor in any catch-up backlog from outstanding reimbursement payments?
  Response: Guidance reflects Q3 weakness; while MACs will adjudicate claims back to January which helps confidence, management does not expect an immediate 'light switch'—recovery and any catch-up will be gradual; full 2026 guidance to be provided in early Q1 2026.

Contradiction Point 1

Forecasting Improvements

It involves differences in the expectations and strategies for improving forecasting accuracy, which is crucial for business planning and investor expectations.

What steps is AVITA taking to improve business forecasting as we approach 2026? - Ross Osborne(Cantor Fitzgerald)

2025Q3: We're improving forecasting by understanding customer utilization and purchase intention at a granular level. Our sales support structure is well-equipped to provide accuracy, and with experienced leadership, we expect significant improvement in forecasting. - David O’Toole(CFO)

Can you elaborate on the initiatives you're taking to improve business forecasting and your approach as we near 2026? - Ross Osborn(Cantor Fitzgerald & Co., Research Division)

2025Q3: 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. - Cary Vance(Interim CEO)

Contradiction Point 2

Sales Team Incentive Structure

It involves the approach to incentivizing the sales team, which directly affects sales strategy and performance.

Are you considering changing the sales team's incentive structure to a portfolio sales approach? - Chris Carlos(MST Access)

2025Q3: We're designing compensation plans for 2026 that align with growth goals and are simple and fair. - David O’Toole(CFO)

Are you considering changing the current incentive structure to a portfolio sales approach instead of medical detailing? - Chris Kallos(MST Access)

2025Q3: 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. - Cary Vance(Interim CEO)

Contradiction Point 3

ReCell Adoption and Reimbursement Clarity

It involves differing expectations regarding the impact of reimbursement clarity on ReCell adoption and customer confidence, which directly affects revenue projections.

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2025Q3: We're educating accounts on the new codes and reimbursement availability to build confidence. The MACs will adjudicate claims from January, further enhancing client confidence. - David O’Toole(CFO)

Could you clarify the premium for split-thickness skin graft payments and its significance for forecasting recovery in the coming months? - Joshua Thomas Jennings (TD Cowen)

2025Q2: There is a notable premium involved. The analysis shows a steady divergence in favor of RECELL utilization and payment versus split-thickness skin graft only. This premium is significant, around 40% by the time you get to 4,000 square centimeters. - James M. Corbett(CEO)

Contradiction Point 4

Sales Force Structure and Expansion Strategy

It involves changes in the sales force structure and expansion strategy, which are critical for revenue growth and market penetration.

How should AVITA balance resource allocation between entering new markets like Europe and prioritizing the U.S. business? - Ross Osborne (Cantor Fitzgerald)

2025Q3: We have the right structure in place to execute. We're going to be disciplined about how we deploy our resources. We'll allow our business to drive the allocation of our resources between the U.S. and Europe. - Carrie Vance(Interim CEO)

Is your current sales team sufficient to meet year-end guidance? - Eric (TD Cowen) on behalf of Josh Jennings

2025Q1: The organization is trained, and the sales model has been updated to reflect the two-stage procedure. The sales force is well-positioned, with a new structure converting clinical specialist roles into sales associate positions. The organization is trained and ready for portfolio expansion. - Jim Corbett(CEO)

Contradiction Point 5

Forecasting and Revenue Expectations

It involves changes in forecasting and revenue expectations, which are critical for investor confidence and financial planning.

What initiatives is AVITA taking to improve business forecasting as 2026 approaches? - Ross Osborne (Cantor Fitzgerald)

2025Q3: Our sales support structure is well-equipped to provide accuracy, and with experienced leadership, we expect significant improvement in forecasting. - David O’Toole(CFO)

Does the current sales force suffice to meet guidance by year-end? - Eric (TD Cowen) on behalf of Josh Jennings

2025Q1: Revenue growth will be primarily driven by unit volume growth across all product lines. We expect strong sequential growth in the second half with a weighted emphasis toward the fourth quarter given the Cohelix contribution. We expect Cohelix to be a material contributor, with a potential breakout of non-RECELL sales by Q3. - David O'Toole(CFO)