Aroa Biosurgery Ltd

ASX:ARX

Q2-2026 Earnings Call

[Sarah Tora, executive]

Welcome to Aroa Biosurgery's investor webinar and Q&A following the company's September 2025 quarter results announcement released this morning. [Operator Instructions] There will be a presentation lasting approximately 15 minutes, followed by a Q&A session. The webinar will conclude at approximately 9:30 a.m. Australian Eastern Daylight Time.

[Operator Instructions] We will also open the floor to live questions. [Operator Instructions] Please note that this session is being recorded. On behalf of AROA today, we have Brian Ward, Founder and CEO; and James Agnew, CFO. I will now hand over to Brian James. Please go ahead.

[Brian Ward, executive]

Great. Thank you, Sarah, and welcome to our Q2 quarterly cash flow. Relatively short presentation this morning just on financial highlights and a few operational highlights.

Normal disclaimer. We do have some materials in the pack that we're releasing to the ASX, which, if you're new AROA, provide further information on operations, strategy and just an overview of the company. So please refer to that if you require further information.

So in terms of financial highlights, we've had a really good quarter over the last 3 months, so operating cash flow, $2.1 million; our cash receipts from customers, $23.5 million, a very solid sales performance across both the AROA direct team but also with TELA Bio as well. So that's led to the last quarter being our fourth consecutive quarter of positive net cash flows. So we're delighted to be able to deliver that. That's come on the back of good growth but also discipline around the control of our expenses. So we see ourselves in a strong position going forward and having the ability to both manage growth, profitability but also our cash position. So I'm thrilled to be able to deliver that.

We end the quarter with increase in cash by $1.3 million to $23.4 million, so continue to be in a strong cash position. From an operational perspective, record Myriad sales over the last quarter. So Myriad continues to gather momentum. We're very pleased with how our direct sales team is performing and see a lot of opportunity for Myriad growth going forward.

From a TELA Bio perspective, over 6 orders tracking to expectations, so still a very strong outlook for TELA Bio over the year and sales continue to track as we had expected. TELA remains confident about their sales outlook but also their financial position. So I feel like we're in good shape on the TELA Bio side.

With our Symphony product, as many of you will be aware, we've been undertaking a randomized controlled trial comparing Symphony to the standard of care in diabetic foot ulcers. All of the patients are now recruited into that study. The final patient will end the study at the end of November. So that's over 120 patients. It's -- the study is being run in order to be eligible for reimbursement in the skin substitute category in the U.S. And so we're confident of good outcome here, and that will then provide us with the data that we need to take to CMS in order for Symphony to be reimbursed.

As many people on the line will know, there's a state of flex with reimbursement for skin substitutes in the U.S. There's been some proposals to amend how reimbursement will work for these products and move from a system where physicians were compensated based on a percentage of the price of the products to a system whereby there's a flat price for all products. And so we are strong supporters of the proposal for this change, and we expect to hear whether this change is going to be implemented in November and then if it is implemented, then it would come into place on the 1st of January 2026. These proposals have been made previously by CMS and not gone through. So we're optimistic that it will go through, but we won't know until November that it definitely will go through.

If you look forward and sort of think about this for AROA, we think that if the proposals do go through, we're in a very good place to capitalize on that opportunity. We know that Symphony performs well in the studies that were done prior to our RCT. We think there's a very nice complementary portfolio here between our Symphony and our Endoform product, and that's something that we can capitalize on. So we're working on our commercial strategy and organization for this rollout and planning to relaunch this Endoform, Symphony package in January next year.

The other highlight from the last quarter has been ongoing peer-reviewed publications that continue to be published, whether they are studies that have been initiated by the company or independently from other investors, so other investigators. What we see is Myriad continuing to be used across a wide range of different indications or procedures and having very good outcomes.

One highlight from the last quarter is a book chapter that has recently been published on our core technology, AROA ECM or ovine forestomach matrix. And this book chapter appears in a new publication, a new book called Regenerative Biomaterials - Emerging Biomaterial Solutions to Aid Tissue Regeneration. And it really brings together a lot of the preclinical and clinical data to demonstrate why AROA ECM and the AROA products are quite different from other products or other technologies where bioscaffolds are used. And so the publication sort of clearly lays out a framework for thinking about soft issue reconstruction bioscaffolds. It kind of categorize those scaffolds into 3 categories.

So the first category is first-generation bioscaffolds or what we call bio-inert bioscaffolds. And so when you think about these materials, there's 3 factors that are really important. That is the structure of the scaffold, the biology that it brings to healing to aid tissue regeneration and whether it's compatible with the human immune system. And so if you think about first-generation bioscaffolds, these are bioscaffolds based typically on synthetic materials. And so they -- all synthetic biologics, and what I mean by that is products where they take a biologic product but reconstitute it into a synthetic product.

So what these products bring to healing is structure, and that structure supports cells to migrate into a wound deficit, infiltrate it and lay down new tissue. But what they don't bring to healing is biology to help aid tissue regeneration or compatibility with the human immune system. So what you tend to see with these scaffolds is healing, healing that doesn't happen as quickly but also healing that's more of a scarring type response rather than a pro-healing response. So any of the synthetic materials tend to drive this type of healing.

As these technologies have evolved, we've moved towards the second-generation bioscaffolds. And so second-generation bioscaffolds are what we call bioactive bioscaffolds. So they don't tend to have much structure, so they provide some support for cell infiltration. But what they do bring to healing is biology so that biology to interact with cells, to help improve healing, but they're also compatible with the human body immune system so that you don't tend to elicit a foreign body reaction like you would see with first-generation bioscaffolds. So these are the early ECM products. So some of the products that were developed 10, 20 years ago are using tissues that were decellularized and then used as the basis for building new bioscaffolds.

What AROA has done is develop what's called a third-generation bioscaffold. So these are bio-responsive bioscaffolds. So they really address all 3 of these key factors for tissue healing. So it provides structure, so structure that will support the infiltration of cells; biology, biology that complements the biology that's already within the patient and helps boost that and augment healing; but then also compatibility. So what we see with AROA ECM is that it elicits a pro-healing response.

So when the human immune system sees AROA ECM, that directs cells to a response that's typically seen during a normal healing response. It doesn't elicit a foreign body response. And therefore, we get rapid healing, and we get the laying down of site-appropriate tissue, not tissue that tries to wall off a foreign body.

So I wanted to talk about this briefly really to highlight that AROA ECM is quite different from other soft issue bioscaffolds that have come previously. There's certainly an advance on what's been seen previously. And these differences help to account for the difference in clinical outcomes that we're seeing with AROA ECM as well.

And so when we look across all of our products, whether it's in product wins, in acute reconstructive procedures, in hernia repair or in brace reconstruction, because all of these products are based on the AROA ECM, we typically see this rapid formation of high-quality tissue that's well vascularized, that's appropriate to the site and looks much more like normal tissue compared to what has been seen previously. And that's really the basis of AROA's competitive advantage in all of the indications that we're in. So if you're curious about this, if you want more background, there's some really great, great material within this book chapter that outlines why AROA ECM is different.

So just getting back to the outlook for the rest of the year. We are reiterating our guidance. So we expect to be within our revenue guidance with a normalized EBITDA guidance at the end of the year. Certainly, we're very pleased with how the business is tracking and feel confident both on the AROA direct side and also on the TELA Bio side.

One thing I will draw your attention to is that we are holding an investor event in Sydney on the 25th of November to coincide with the release of our half year results. What we will do at this event is do a deep dive into some key areas of AROA's business and provide some substantial updates on these parts of the business.

So particularly Symphony, we'll have more details on the reimbursement environment. So we'll share our commercial strategy. We're going to talk about progress with Enivo. It's made some great progress there, much more clarity around our clinical plan. We're planning to have Tony Koblish from TELA Bio join the event and talk about TELA Bio and outlook for TELA Bio over the rest of the year and provide some comments on how the business is tracking.

And we also have a couple of other slightly more minor topics to talk about. So we think this will be a really valuable event. We will have some great opportunities to talk with executives in the company and potentially some clinicians as well. So if you're interested, please save the date, and we'd love to see you in Sydney for that event. Further details, registration information will be released to the ASX in early November. So I'd love to see you there and I think it will be a very valuable event for everyone that attends.

So with that, I'd like to open it up for questions and answers.

[Sarah Tora, executive]

Thank you, Brian. So we'll move on now to Q&A. [Operator Instructions] So let's take a look and see if we have any questions. Okay. So we have got some questions coming through now. So given that we've had 4 quarters of positive cash flow, is there an expectation to continue with quarterly reporting?

[Brian Ward, executive]

Look, I mean, we will be continuing as we're required to by the ASX. For as long as that happens, obviously, we've done 4 quarters in a row, then we may become exempt from having to do that. We'll go through the process with the ASX to determine what happens next.

Certainly in terms of quarterly reporting, we'll be doing now half years, so that will happen every 6 months. We are thinking that in the middle of that, we will do a quarterly report. So it will be 2 half year -- half year report, a full year report and then 2 quarterly reports each year.

[Sarah Tora, executive]

Right. Okay. And just some comment on the growth for Myriad and how we're defining active accounts.

[Brian Ward, executive]

You want to take that?

[James Agnew, executive]

Yes. Look, what I can say about Myriad -- and look, a lot of this information in more detail, we provided at the half year. Look, this quarter was our best quarter in Myriad. It was up in excess of 30% on the previous corresponding quarter. And if you look at Myriad on a run rate perspective in the current quarter, that sort of puts us at 27% growth on the current run rate, 27% growth on top of last year -- sorry, last year's revenue. And obviously, our expectations are -- is that Myriad revenue continues to step up quarter-by-quarter.

And look, in terms of activity in the sales force, I mean, look, we've actually kept our sales force -- the sales force sales level in terms of number of employees has remained pretty constant, and we continue to see increase -- continued increase in the number of accounts but more importantly, increased penetration into the existing accounts. But -- and shortly, we'll provide a more fulsome update at the half year.

[Sarah Tora, executive]

Okay. And if you could also comment on our U.S. sales in general and any plans around increasing sales staff.

[Brian Ward, executive]

Yes. Look, we -- and I think we've said this for some time. We're very focused on improving productivity across the team so that we know that when we bring people on, we can like break even quicker and get traction quicker. So there's been a lot of effort of putting into how do we get our team more effective, more quickly sales productivity.

So that's going well. We've recently developed a whole new training program for our people, and we're about to roll that out. And I think our messaging is a lot sharper. I think we -- our -- I think we're much clearer about the value that we can bring to hospitals. We certainly have more clinical data as well. So we think tuning that up and making sure that our people are up speed with the training is super important. We do from a -- adding headcount. This year, we will add a small number of salespeople, but we're not -- we won't have a massive increase in the sales team.

But despite that, as James said, we will get a significant uplift in total sales, and that's really what we're looking for. And then going forward, we've got to step up the sales team over the next couple of years.

[Sarah Tora, executive]

All right. And just following on from that, what do you -- would you say is a key driver in the increase in Myriad sales?

[Brian Ward, executive]

Yes. I think it's a few things. So clinical data for sure. I think understanding the value that we can bring to hospitals in terms of not just clinical outcomes but what it means for internal cost of care for patients. I think that's super important. I think what -- we're seeing that Myriad is very effective in our target procedures, so great success in trauma, very good success in lower limb salvage as well, so they are the predominant procedures.

We also see that Myriad is a very versatile and flexible product, so it could work in a wide range of more minor procedures as well. We're not seeing Myriad be unsuccessful in the broad range of soft tissue reconstruction. So I think that's something that's highly valued by hospitals and highly valued by surgeons, that flexibility and that versatility. And I think that's something that we will capitalize on going forward.

[Sarah Tora, executive]

Right. Now [ Brett Rock ] is asking whether we have any progress on IDN deals this year.

[Brian Ward, executive]

Yes, we don't. We are certainly in discussions with IDNs regarding Myriad particularly, but those are ongoing at the moment.

[Sarah Tora, executive]

Right. Okay. And just turning to the environment in the U.S. So we've got a question there on whether the tariffs are having any impact and similarly, the U.S. government shutdown.

[Brian Ward, executive]

Yes. I mean, I think, the tariffs, we have accounted for the tariffs. It's frustrating but not hugely material in the business. And so for us, this year, it may be $1 million, $1.5 million. So it's important but not -- doesn't undermine our business model.

The shutdown, I think the one area where we may be impacted by the shutdown could be in the decisions around reimbursement changes for Symphony. So that -- there's a process that's being worked through in the U.S. government to finalize those changes, to bring those changes into place. And we are not privy to their work program, but the announcement for finalization was due at the beginning of November. What we are hoping is that that's not delayed and that the implementation of those changes is also not delayed. But at the moment, it's a little bit unsure whether that will or won't be the case.

[Sarah Tora, executive]

Great. And if you could also talk about breakdown of geographical sales and the growth outlook for rest of world sales.

[James Agnew, executive]

Yes. So look, each of the international markets are continuing to grow as Canada is starting to make some really good traction there. Germany, again, is a key market, the U.K., I mean, South America and then the Middle East as well. And also starting to get some -- first bit of traction in Australia, so which is nice to know.

[Sarah Tora, executive]

Okay. And do you think there are opportunities to coordinate our sales activities with TELA just to generate some efficiencies?

[Brian Ward, executive]

Yes. Look, we obviously have ongoing dialogue with TELA Bio, and I think there definitely are some areas where we can get more impact from what both the companies are doing independently by working closer together. And I think, certainly, we look at the -- why does the technology work so well. I think a much more consistency around our messaging on that. I think -- so that surgeons really understand why -- how this technology works and why it works like it does.

So I think from a promotional perspective, yes. There are some -- we're looking at some potential joint activities as well. Where we have surgeons working in adjacent areas, we may be able to make more of that and potentially at the -- both the IDN and GPO level. So I think there's a range of initiatives between both companies to see how do we get more impact than either company can do on their own.

[Sarah Tora, executive]

Excellent. Okay. Well, that's all the questions that we have for today. So I think we can conclude the webinar. Thank you, everybody, for attending. Do you have any final comments to share, Brian?

[Brian Ward, executive]

Yes. I mean just kind of reiterating fantastic first half to the year. Really pleased with how all parts of the business are tracking. Really positive about the outlook for the full year, and we see some really good things coming together. We feel like we're -- I've said this quite a bit, but we feel like we're only just getting started. There's a lot of opportunity in front of the company, and we're seeing a lot of things come together now to help build that momentum.

[Sarah Tora, executive]

Excellent. Well, thank you for joining, everybody. We will conclude the webinar now.