AVITA Medical Q1 2025 Earnings: High Growth, Higher Stakes
Taking a Look at AVITA Medical's (RCEL) Earnings Results.
AVITA Medical (RCEL), known for its innovative RECELL spray-on skin system for burn treatment, is trying to navigate a strategic inflection point with lingering uncertainty. After years focused on burns, the company has broadened into a multi-product wound care platform and overhauled its sales strategy to chase a much larger market. Q1 2025 was the first real test of this pivot, but the results were not so great. The quarter showed some growth and new product launches that expand AVITA’s horizons, but it also fell short of the company’s own ambitious expectations, raising concerns about execution and credibility (again). Below is a breakdown of the quarter’s key highlights and what they mean for AVITA’s trajectory.
Q1 2025 Financial Highlights
Surging Revenue, But Short of Hopes: AVITA reported commercial revenue of $18.5M for Q1, up 67% YoY (from $11.1M a year ago). This growth was driven by deeper use of RECELL in burn centers, new account acquisitions for treating acute wounds, and initial sales from new products. However, despite this strong YoY jump, sales came in below internal targets, management had been expecting an even stronger quarter (around ~$20M), so the miss was disappointing against their high bar.
Robust Margins: Gross profit margin remained around 85% (84.7% this quarter vs ~86% last year), illustrating that their core business maintains excellent unit economics. Even with new product introductions (which carry slightly lower margins due to partner profit-sharing), the company is still holding mid-80s gross margins, a positive sign that it can expand revenue without eroding profitability on each sale.
Persistent Losses (but Improving): RCEL recorded a net loss of $13.9M for the quarter (about $0.53 per share). The company is still losing money as it invests in growth, but the loss narrowed from a $18.7M loss in Q1 2024. Opex were roughly flat YoY at ~$27.5M, as higher sales & marketing costs (from last year’s expansion of the commercial team) were offset by cuts in G&A. Management has implemented cost controls that they expect will reduce opex by roughly $2.5M per quarter going forward. With these savings, they reaffirmed that they are aiming to reach breakeven (GAAP profitability) by Q4 2025.
Cash Position & Runway: They ended March with about $26M in cash and equivalents on hand. This is down from roughly $36M at year-end, reflecting the quarterly loss and working capital. The cash burn is a concern, while the company anticipates turning cash-flow positive in the 2H of 2025, it has a limited cushion to get there. AVITA also carries debt (a credit facility of ~$41M), which brings covenants the company must meet. In fact, Q1’s revenue shortfall put RCEL in danger of breaching a lender’s covenant: they narrowly avoided a default by securing a last-minute waiver for the quarter’s revenue target. All future quarterly revenue covenants remain steep ($78M trailing twelve-month revenue required by Q2, and $115M by later quarters), so execution in coming quarters must accelerate to avoid financial strain. This tightrope act on cash /debt shows the high stakes for AVITA to hit its growth milestones in 2025.
Expanding Portfolio & Sales Restructuring
One of the most exciting developments is how RCEL has evolved from a single-product company into a broader wound care player. In recent months, the company launched several new products that expand its addressable market far beyond burn treatment:
RECELL GO mini: In February, they rolled out a smaller, disposable RECELL cartridge designed for treating smaller wounds (up to 480cm, versus 1,920cm for standard RECELL). This “mini” version makes the RECELL technology usable for a high volume of small acute wounds (for example, certain trauma or surgical wounds), reducing waste/lowering the barrier for new doctors to adopt the system. Management expects RECELL GO mini to drive broader adoption in trauma centers and to contribute meaningfully to growth as 2025 progresses.
Cohealyx Dermal Matrix: They officially launched Cohealyx in early Q2 (April) after receiving FDA clearance. Cohealyx is a collagen-based dermal matrix that is applied to a wound bed to promote healing and tissue regeneration before using skin grafts or RECELL. Essentially, it prepares and improves the wound bed, allowing skin grafts or sprayed-on cells to take hold more effectively. Cohealyx is used in combination with RECELL and dressings as part of a two-stage treatment for severe wounds. This product was co-developed with an external partner and complements the RECELL system, by adding Cohealyx, they can now address an earlier phase of wound care (preparing deep wounds for closure). Initial clinical feedback has been positive, and RCEL is running a post-market study to gather more data. Importantly, Cohealyx is expected to be a significant revenue driver: it effectively increases the “pre-treatment” spend per patient, which could boost their average revenue per procedure and expand the total market the company can serve.
PermeaDerm: Rounding out the portfolio, RCEL in-licensed and now markets PermeaDerm, a biosynthetic wound dressing. This is a transparent, temporary skin substitute that protects wounds and supports healing after a burn or surgery. They gained exclusive U.S. rights to distribute PermeaDerm (originally developed by a partner) in late 2024, and as of Q1 2025 it’s being sold alongside RECELL. This gives AVITA a full suite of solutions: Cohealyx to prepare the wound, RECELL to regenerate skin cells, and PermeaDerm to cover and protect the wound. The integration of these products means AVITA can serve a much broader set of cases in acute wound care beyond just burns.
By launching these new offerings, the company claims its total addressable market (TAM) has ballooned from around $500M to roughly $3.5B in the U.S. Previously, their market was largely limited to severe burns (a niche but important market). Now, with Cohealyx and PermeaDerm able to be used in a wide range of full-thickness wounds (burns, traumatic wounds, surgical wounds, etc.), and RECELL GO mini enabling treatment of small injuries, they can target many more patients across burn centers, trauma units, and surgical theaters. This seven-fold TAM expansion is a game-changer in theory, it opens the door for sustained high growth in coming years if the company can penetrate these new segments effectively.
To capitalize on this opportunity, the company undertook a major sales force restructuring in late 2024 and into Q1 2025. They expanded their commercial team last year to educate surgeons and hospitals about the broader product suite. Then, recognizing some inefficiencies, the company transformed its sales model this quarter: redeploying reps to focus on high-value trauma centers, refining incentive structures, and trimming some overhead. The net effect is a leaner but more targeted sales organization (supposedly). The CEO noted that this “commercial field transformation” should not only drive deeper adoption at existing accounts (by promoting the multi-product portfolio) but also reduce costs (hence the $2.5M quarterly expense reduction). In Q1, sales and marketing expense was indeed up from the prior year (due to the larger team), but going forward RCEL has cut certain G&A and administrative costs and expects sales productivity to improve. The company is essentially doing a “reboot” of its commercial strategy, after an aggressive build-out in 2024, they are now optimizing for efficiency and sharper execution in 2025. The hope is that this new strategy will accelerate revenue growth in the back half of this year, putting that lofty full-year revenue guidance of $100M+ within reach.
Valuation
Given the combination of high growth potential and high risk, how should investors value AVITA now? I’ve revisited my valuation model in light of Q1’s results and the company’s updated outlook. Previously, their intrinsic value looked very high (around $15 per share in my model) under optimistic growth and margin assumptions. But after this “reset” quarter, it’s prudent to dial back expectations. Incorporating lower growth in the near-term, a longer runway to profitability (persistent losses through 2025), and the likelihood of additional share dilution (if the company raises capital to bridge its cash needs), the revised reverse discounted cash flow analysis yields an intrinsic value of roughly $8 per share.
This estimate is a drastic reduction from before, reflecting on the reality that AVITA’s story now carries more uncertainty. Interestingly, $8 is much closer to where the stock has been trading recently. After the Q1 earnings release, AVITA’s stock price fell nearly 20%, aligning with this more cautious valuation. In other words, the market has largely priced in the higher risks and is no longer giving the company much credit for unproven future growth. At the current price, investors seem to be saying “show me the results first.” For the stock to climb meaningfully from here, the company will need to execute well, delivering on its growth promises, hitting that breakeven target, and proving that the new market opportunity can translate into real sales momentum. If it can, there’s certainly upside beyond $8 and my original valuation will remain valid; but if not, downside remains if cash runs low or dilution accelerates. Right now, the valuation is tempered and grounded in caution, which is probably exactly where it should be until they can rebuild credibility.
My Take
This wasn’t a great quarter, especially considering I was expecting significantly higher revenue. As I’ve said before, RCEL has a track record of overpromising and underdelivering, and this quarter didn’t do much to change that narrative. Given the company’s current liquidity position, combined with its aggressive guidance and milestone targets, I find it hard to believe they can hit those goals without turning to additional financing, likely under terms that won’t be favorable to shareholders. After giving this some real thought, and having held the stock for a while, I’ve decided to exit my position and take a small loss.
The company is still immensely interesting though, few medtech firms can boast 67% revenue growth and a newly expanded market that’s 7x bigger than before. Their technology clearly addresses a real need, and the strategy of providing a complete wound care solution (from preparation to healing) makes sense. In theory, this should drive growth for several years to come. However, as an investor, I have to balance that promise with execution risk. This quarter showed, once again, that RCEL has a tendency to overestimate how quickly it can ramp up. Management also had to get a covenant waiver to avoid a technical default – this is concerning. It signals that the credibility gap between what management says and what they deliver has widened, and that needs to be addressed with actual results, not just talking the talk.
I appreciate that they recognized the issues and is actively making changes (the sales reorganization/cost cuts). The roadmap they’ve laid out, hitting cash flow breakeven by late 2025 while more than doubling revenue this year, is ambitious, but not impossible if the new products catch on. The next few quarters will be critical, something that will make or break the company (seeking financing to get them to targets, or other unfavorable financing arrangements). I’ll be looking to see if revenue re-accelerates (sequentially) as Cohealyx and RECELL mini contribute and if operating losses shrink as promised. If they can start stringing together quarters of meeting or slightly beating its targets, trust will slowly be restored. On the flip side, any further big misses or if breakeven slips beyond 2025, then I’d expect the stock to languish or even fall much further at current prices, and a dilutive capital raise would be almost a certainty.
RCEL is at a crossroads. The company has an intriguing growth story and a much larger market in its sights, but it now must prove that it can execute in a financially disciplined way. I remain interested in their long-term potential and will still cover the company. That said, I’m skeptical in the near term, I want to see evidence that management’s optimism will translate into actual performance before getting more enthusiastic. For now though, I have decided to exit my position and will revisit later in 2025. If the company can deliver on its promises without burning through more cash or diluting shareholders excessively (unlikely in my opinion), then this inflection point could eventually give way to an impressive growth story.