@mikebrisy, really good comments to challenge the thesis, thank you! My thoughts in return:

Management FY25 Guidance

My main issue is how much weight to put on management guidance, where the key elements are:

• Revenue growth for FY25 to be 55%-65% over FY24
• Expenses to be controlled with no further expansions this year, so $26m expense per Q as a baseline

In my FY24 results writeup, I wrote: There is clearly ongoing risk that GAAP profitability will not be achieved in FY2025. It is achievable given expected flat expenses (~$104m) and expected expansion of revenue (~$100-106m), but planets do need to align throughout the year. AVH will remain vulnerable to hiccups, any or all which could dent the share price again. However, any delays will likely only be a timing issue as the trajectory and plan to profitability is clear and imminent. 

I am optimistically sceptical that this is achievable, but there are clear risks that it won’t be met. The one thing that has been clear though, is that planets continue to align very nicely, including the latest PermaDerm announcement, and there has been a high degree of consistency in management commentary since I started watching AVH more closely.

So, am fully aligned with you on the risk of a miss, hoping that it will not materialise, but I am mentally braced for it! Having said that, I do think that meeting both profitability and cash flow positive goals are imminent - if not FY25, then early FY26.

Multi-Product Offering vs PNV

I like their strategy. In contrast with $PNV, they have a total dermal repair offering: dressing, epidermis and dermal scaffold, although you can see the large share of wallet that sits in dermal matrix (diagram below). The big advantage is that the sales reps can cross-promote all three products.

I agree. I had a good look at PNV about 6-12M ago at around ~$2.00, before the 1HFY25 results and the recent dramas, and was comparing with AVH, with the view of going all in on either AVH or PNV. I struggled to work out why PNV was going to be a better horse to back with the single product. This became harder as AVH’s Burn Continuum strategy became clearer after CoHealyx and PermaDerm was added. 

The phrase that Vance used in the XRF chat yesterday “technical and chemistry support to our customers” also resonated with me as it relates to AVH. Their sales team have also been positioned to provide “burn wound care management support” to the hospitals. Each product that they add only strengthens the value and embedding of the AVH support folks, which in turn creates its own flywheel. I just cannot see how PNV would achieve a sustainable flywheel with a single product strategy.

Sustainability of Revenue

Of course, before getting too excited, one should have a view on the longer term growth trajectory. What kind of revenue growth can be sustained for a category that has an increasing array of products being made available to surgeons. $PNV is a warning how the brakes can quickly come on hyper-growth revenue once you start getting in the vicinity of A$100m / US$60m. There's a finite market here and competition matters. Having said that, there's plenty of room for an increased valuation, and the market would almost certainly respond very positive to such strong reported revenue growth, even given an unknown future. (Shares today a trading on a consensus 2027 P/E of 3.0 - but the analysts are usually way ahead of the market on this one.) 

Agreed. This is where I think the AVH trajectory differs sharply with PNV. AVH has substantially lifted its TAM across the product suite and it has made clear that that TAM increase is because of the new products, not Recell Go. While AVH has continued to strongly highlight the medical and hospital/customer cost benefits of Recell Go, Recell Go Mini etc, I do sense that, in parallel, there has been a not-so-subtle “de-emphasising of Recell Go” as the revenue driver in AVH’'s positioning.

Over and above the Recell Go-PermeaDerm-CoHealyx present state, there are 2 other growth drivers that have yet to be defined or kick in:

• 4 more products that need to be added to the Burn Wound Continuum to complete it end-to-end - each of these will further grow the TAM, the extent of which is unclear - Wound Depth Assessment, Wound Bed Preparation, Wound Bed Hemostasis and Wound Scar Reduction/Revision
• International Sales which is pending Europe CE mark certification.

I think it will take AVH at least the next 1-2 years to move on all these fronts. At the end of that onboarding period, AVH should have morphed to become much bigger and broader. So if things continue on this trajectory, I think it will be some more years before revenue growth stagnating will be an issue.

But this is still all “possibilities” at this stage. I do need to see at least 2 Quarters of revenue from the full-suite of products, likely to be 2Q and 3Q FY25, before working through how sustainable the revenue is going forward.

Management Blame

My main concern is that management have missed some of their guidance in the past, so I think the time has come to put a deeper dive into that. For example, in their most recent communications they appear to blame approvals in Europe and Australia on "slow administrative processes". Is that right? Or do they just make optimistic and unrealistic plans? As a quarterly reporter by virtue of their US listing, if they appear on track in the 1Q report in Arpil, that might give me confidence to dip my toe back in the water.

This is true. And there have been a few!

The Europe CE mark - that has been an ongoing saga for the past 12M. Latest update is that everything asked for has been given and they are now waiting for the administrative process to play out - management is frustrated as hell with the delays, noting that unlike the FDA, the Europe process does not have regulatory timelines. Given the good track record on FDA approvals happening when they said it would and where things are at, and the fact that very little International Sales has been baked into the FY25 revenue numbers, I do not have any concerns with how management is positioning this delay.

The 4QFY25 revenue miss - this was a brutal one which hammered the price. The explanation was that hospitals just didn’t buy as much at year-end as they normally do to conserve budget. I took a shit-happens view on that back then as this was a seasonal issue - the growth YoY was still spectacular by any measure despite the miss. As the Trump chaos has played out, perhaps the hospitals saw something that the rest of us didn’t in terms of budget, spending constraints ...

Prior to that in early CY2024 was the miss from challenges in the VAC process which slowed the onboarding of new hospitals in their update of Recell Go. They got smarter subsequently, and the bottlenecks have mostly gone away. I accept that like all things new, there has to be some form of “investment” via the making of mistakes/hitting the wall, so that the learning takes place and the company gets smarter thereafter

I can understand why the market would see these as misses and punish the share price. But in taking a management operational lens, my view was that the baseline plan was for x to happen, shit happened which prevented x from happening, they learned from it and applied the learning going forward, and everyone moves on from that. I would ask no differently from my own staff at work. But none of these were thesis breaking at all. 

While it is easy to call it “excuses” or “blame, I don’t see how else management could communicate it any better. I much prefer this upfront Yank-in-your-face type explanations, than hiding behind incoherent waffle ala Ellison!

IN SUMMARY

I am very comfortable with where AVH is and has come from. I tend to jump in early in a turnaround and ride the upswing, and the volatility around it, assessing thesis risk all the time. AVH has been more challenging as the nice upward price movements got smacked hard. It really has been 2 steps forward, 1 step back. But I think the flight plan is now very clear and after some problems at the terminal, AVH has taxied to the runway and has decisively taken off. Whether the climb and remaining flight is a smooth or turbulent one, time will tell but the view from the flight deck looks promising for now!

Discl: Held IRL and in SM

@jcmleng They won’t make a GAAP profit in FY25, but if they hit their targets they’ve said that will in Q4. If that happens, FY26 will be solidly profitable.

I’m in reasonable agreement with everything you’ve written, I’m just more cautious and don’t feel I have the measure of management.

Very much on the list to do more work on because this is the time to pounce!