Ann: Financial Results for Quarter Ending 30 June 2024, page-38

Here's the guts of it. Yes, I am with BP. Not all good recommendations, but a few good ones. Doing well out of 360, TNE PME to keep me going as well as the usuals. Had a few howlers but who hasn't.
All figures in US$. AVH posted a pleasing return to quarter on quarter revenue growth
in 2Q24 with revenues of $15.2m (↑ 37% vs 1Q24). Loss at EBIT declined by $1.6m to
$15.6m. Net cash burn for the quarter was ~$14m with closing cash of $54.1m. Recell
Go was launched late in the quarter, therefore, the majority of revenues were likely
earned from the sale of the legacy Recell kits to traditional burn centres.
The company has opened 89 new hospital accounts since the label expansion of 1
July 2023 with a further 85 in various stages of VAC approval. Penetration rates into
these new accounts is expected to rapidly expand in 2H24 as Recell Go is rolled out.
AVH introduced the new kits to a limited number of high volume accounts in June.
The broader roll out will gather momentum over the course of 2H24.
Additional catalysts for 2H24 include expansion of the international footprint to 9 new
distributors in Europe. CE Mark is expected in 2H24. FDA approval of Recell Go mini
for the treatment of smaller trauma wounds and chronic wounds is expected in late
4Q24. Results from the TONE study in Vitiligo are expected in 4Q24 followed by health
economics data. These items will facilitate reimbursement discussions.
Revenue guidance for 3Q24 is $19m-$20m – representing another quarter of c. 30%
growth. FY24 revenues guidance was lowered to the revised range of $68m - $70m
(from $78.5 - $84.5m). The guidance implies 61% growth in 2H24 revenues vs 1H24.
Investment view: Upgrade to Buy (Spec), Val raised to $3.60
AVH now finally appears on the cusp of sustained revenue growth following a long
period of product development, investment in R&D and loss leading expansion of the
sales force. As revenues expand we expect the quarterly cash burn to continue to
diminish after peaking in 1Q24. The company has undrawn credit facilities if required.
The major growth driver in the short term will continue to be Recell Go in the treatment
of burns in the many new accounts, expanding to trauma wounds. Valuation is raised
to $3.60 (from $3.20) and we upgrade our recommendation to Buy (Speculative).
Absolute Price Earnings Forecast
December Year End US$m FY23 FY24e FY25e FY26e
Revenue (product sales) 50.1 68.2 109.5 170.8
EBITDA $m -42.7 -56.9 -24.9 18.6
NPAT (reported) $m -35.3 -61.2 -31.7 12.1
NPAT (underlying) $m -28.3 -54.2 -24.7 19.1
EPS underlying (cps) -111.0 -210.4 -94.9 73.4
EPS growth % nm nm nm nm
PER (x) nm nm nm 10
FCF yield (%) nm nm nm 6%
EV/EBITDA (x) nm nm nm 10
Dividend (cps) - - - -
Franking 0% 0% 0% 0%
Yield % 0% 0% 0% 0%
ROE % nm nm nm nm
SOURCE: IRESS SOURCE: BELL POTTER SECURITIES ESTIMATES
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AVH S&P 300 Rebased
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Avita Medical (AVH) 9 August 2024
A Solid Recovery
Figure 1 - 2Q24 revenue and earnings summary
SOURCE: COMPANY DATA
Recell Go was launched in the US ~3 weeks before the end of the quarter to a select group
of high volume specialist burns hospitals (i.e. ~20). The majority of pre 2024 hospital
accounts are therefore yet to use the new device. We estimate less than 10% of total
revenues in the quarter were from Recell Go – in other words, demand for the legacy
device rebounded strongly from a poor 1Q24.
AVH has opened 89 new hospital accounts since the label expansion on 1 July 2023
including 37 in 2Q24. A further 85 new accounts are in various stages of VAC approval. All
new hospital accounts from this point forward will commence with Recell Go. The company
is on track to open 200 new accounts by the end of 2024, all of whom will be using Recell
Go in burns and trauma wounds by year end.
Figure 2 - Quarterly revenue analysis
SOURCE: COMPANY DATA AND BELL POTTER SECURITIES ESTIMATES
ADDITIONAL GROWTH DRIVERS:
Distributors appointed in 5 jurisdictions across Europe and 4 in Scandanavia. Revenues
are expected to commence in 4Q24 following CE Mark for Recell Go expected in the
current quarter. This will be a revenue share arrangement with the partners.
Recell Go mini for the treatment of injuries <480cm2
. The PMA supplement was lodged in
late June and is subject to Break Through Designation and a 180 day review period.
Approval expected in late December 2024. This application will be targeted to small
chronic wounds including DFU’s and pressure ulcers and will be ideal for outpatient clinic
wound care.
2Q23 2Q24 2Q24
Summary Income Statement US$m Actual Actual % change Forecast
Revenues from product sales 11.8 15.2 29% 13.7 11% Strong recovery in qtly rev following a poor 1Q24
Gross profit 9.5 13.1 37% 11.6 12%
GP Margin 81.2% 86.1% 85.0% GP margin now being sustained above 86%
BARDA revenues 0.5 0.0 na 0.5 na
Sales and marketing -10.0 -16.3 -63% -13.0 -25% Large increase vs pr sequential quarter. Up by $4m.
General and admin -6.2 -7.5 -22% -8.0 6% G&A expense increasing in line with top line growth
R&D -5.1 -4.9 4% -4.0 -22% TONE (vitiligo) expected to report data in 4Q25
EBIT -11.2 -15.6 -40% -12.9 -22% Loss at EBIT decreased by $2.0m vs 1Q24. Cost base too high US$115m.
Net operating expenses as % revenue 176% 189% -179%
Net interest charge/other income 0.8 0.3 -68% -1.4 na Includes $1.34m in net intererest expense.
Pre tax earnings -10.4 -15.4 48% -14.2 -8%
NPAT reported -10.4 -15.4 48% -14.2 -8% Adjusted NPAT was ~$13m net of one off credit in other income
Diluted shares on issue 25.2 25.8 28.5 -10%
EPS (cps) -41 -60 -55 8%
%
Difference Comments
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1Q22 3Q22 1Q23 3Q23 1Q24 3Q24e
Revenues US$m
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Avita Medical (AVH) 9 August 2024
Vitiligo – The TONE study 6 month follow up study is complete. A manuscript has now
been written and is expected to be published in 4Q24 along with key data from the health
economics study. The data package will be the starting point for reimbursement
negotiations with private payers. The time frame for a launch in Vitiligo in CY26 remains on
track.
BALANCE SHEET
Cash burn for the 6 months to 30 June was $36m including ~$14m in 2Q24 relative to
closing cash at period end $54.1m.
AVH continues to invest c. $5m each quarter in R&D which to this point has not been
realised in revenue conversion. The launch of Recell Go represents the first major change
to the product since launch in 2019. This item together with the expanded label in full
thickness wounds remains the major catalysts to drive revenue growth in FY25.
Based on our revised forecast and the current rate of operating expenses, we expect the
company will require additional capital in 2025. There are two tranches of debt available to
drawn down if required. The first hurdle to draw down these additional tranches is for
revenues to exceed $67.5m for the 12 months to 2024. AVH continues to expect to reach
cash flow breakeven in 3Q25.
GUIDANCE
Revenue guidance for 3Q25 is $19m-$20m. FY24 revenue guidance was lowered to the
new range for $68m-$70m (previously $78.5m - $84.5m).
Figure 3 - Earnings changes
SOURCE: BELL POTTER SECURITIES
FY24 earnings are downgraded by 9% following adjustment to expenses. Sales and
marketing expense increased by ~25% ($3.7m) q/q. Full year expense as amended to
reflect the quarterly run rate. The company does not plan to add additional headcount for
the remainder of the calendar year.
FY25 revenues are increased by 3%. We are confident the company will reach revised full
year revenue guidance for FY24 inclusive of ~$22m in final quarter. Based on this exit rate
and the large volume of new accounts signed in 2H24, we expect very strong top line
growth to continue in FY25.
FY26 is now likely to include first revenues from Vitiligo sales and ongoing growth in
international sales and ongoing market penetration in burns and trauma in the US.
Based on these adjustments and strong growth outlook, valuation is revised upward to
$3.60 from $3.20. We upgrade our recommendation from Hold to Buy (Specul