PolyNovo Limited (PNV) Earnings Call Transcript

Well, sincere apologies, everybody. I just came in from the airport and got lost in the traffic.

No worries. All right. Well, let's kick things off. Thanks, David. So without further ado, thank you, everyone, for joining us this morning. We're really pleased to have PolyNovo Chairman, David Williams, to talk us through the FY '25 trading update that was released to the market. So David, thanks for making the time. Nice update released yesterday. And why don't you take us through your key highlights to kick things off when you're ready?

Well, I think the key highlight for me is it's still business as usual. We've got good growth across the globe. But more particularly in the engine room, which is America, we're still seeing roughly across the globe and in America, roughly that 30% growth. It doesn't show any signs of easing at the moment. And I think one of the things I'd point people to is sort of interesting is the turnover that was in the U.S. So sales of AUD 88 million. I ask you to sort of think about that in the terms of which I've revealed it in the past, which is that we put a salesman on. I don't look at that as an investment. I look at that as working capital because I really want them to get up to speed and pay for themselves pretty quickly, which they do because of the margin and the product. But it's very interesting because elsewhere in that release, I've said that we've now got 88 people on the ground in the U.S. By on the ground, I mean, literally on the street, not the support people back in the office and so forth. And we've got another 9, which are a mixture of new and some backfills. So that's -- when we have those hired shortly, hopefully, that will be 98. But interesting, we've got 88 people on the ground and we got AUD 88 million of turnover. And I sort of said as a rule of thumb in the past, the way I look at somebody, I really hope that the salesperson is going to be able to pay for themselves very quickly but then get themselves up to $1 million worth of sales. So sort of interesting to reflect on that. I think that in itself, given the strong growth that we're still seeing in the U.S. is it gives you a much better feel for where we're going to get to this FY '26. And I'll leave that to you, Thomas and John Hester and the other analysts who follow the stock. But in that context, I would also say, and I just saw something on social media last night talking about, oh, we haven't got another record month yet, et cetera, et cetera. Well, I've made it pretty clear there that June was a record revenue of $13 million for June '25. And if you're trying to do some sort of calculation about where we might be in FY '26, that's not a bad starting point. Now yes, month-on-month after, you see it's a bit lumpy, but when you look at that graph that's in the release going from only '21 -- FY '21, '22, very low monthly sales right up to now, revenue of $13 million per month. So it hasn't eased off is my point. And that means that the U.S., in particular, is very profitable. I should just say on that because I keep getting asked, but the issue of tariffs and Trump, it's not giving me 1 ounce of sleepless nights. And because the tariff, whatever it happens to be, is going to be levied on the cost of the product. The cost of our product is trivial. And so [ if a 10 by 10 ], the tariff might be $3 or $4 or $5. And so -- and put it in the context, by the way, of where we are compared with our competitors. We've already got a lot of fat in that system. And if people had any sort of criticism, it might be why don't we fill that gap between ourselves and other products in the market. And the short answer is we have increased our prices this year roughly 10% in the U.S., and there's still plenty of room for that as well. So I'm not worried about the tariff at all. And not only just because it's trivial in terms of what the dollar figure would be, but -- and not only because it's how much fat there is between us and our nearest competitor, but this is, in many cases, a trauma product. So if it's a soldier in the field, he's going to get seen to whether Trump's put another $3 on the product or not. So I don't have any concerns with it whatsoever. I think the other interesting thing about the revenue, even though the U.S. is still the engine room is just the growth we're seeing across the globe in two ways. Number one, just first sales, countries that we weren't supplying last year, and there's a list of those interesting things like Malaysia, the Czech Republic, Malta, Portugal, Peru. And in each of those ones I've named, we've already had a second order. So it starts off slowly. It started off slowly in the U.K., by the way, at the end of COVID, where we weren't really supplying much in the way of burns at all because I couldn't get an operating theater and a whole lot of other reasons. But -- so we did a lot of small sales there. Now we've hit the burns market, and it's going fantastically. So you see the growth in the U.K., for example, was 51% this year and did in Canada, 48%. I should have said there, by the way, we've now got 3 people on the ground with a couple in support. So I think that Canadian figure is going to -- look, they're all going to go up. So -- but the growth we're seeing in Canada, 48%, U.K., 52%. France, okay, coming off a 0 base. But I just expect these countries are going to continue to grow. So the U.S. will still remain our engine room in more ways than one, but these other countries are going to catch up pretty quickly. The other reason why the U.S. will still go ahead in leaps and bounds is because we've released MTX there. So the MTX, as everybody knows, is the BTM product without the plastic on the top. And so I think we sold $2 million in the first half when we just released it. And the second half just finished with $4.6 million, so the total for the year is $6.7 million, but that is growing very, very quickly. And it's also -- it's being used sometimes in conjunction with MTX and BTM. So even a deep wound, a surgeon will put the MTX on the bottom and then the BTM on the top. But we're also seeing a lot of interest in that product out of plastic surgeons, in particular, and who are using it for fillers and to put under flats and so forth. So we expect that is going to grow very quickly this year as well in the U.S. because that's where we released it. But as soon as we've got that ready to go in Australia, we're going to see the same sort of growth here, I think, with plastic surgeons and in different markets. So I think that's the sort of highlight for me. I think the other highlight because it seems to exercise some people's mind, and I think it came out of the fact that we said at the end of March that our cash was $22 million. Everybody knew we were building a factory, and that was going to take some capital, although not very much as everybody knows. I think the whole thing was $25 million, $30 million and can probably do 10x what we've got now. So it's going to serve us for a long time. But the cash has now come back strongly because of the operating profit. And so we've announced today that our operating profit for the year will probably be around $10 million to $12 million, $11 million, I think, the consensus is amongst the analysts, and we see profit just increasing next year as well. So when I look at cash and I look at where we are now, at the end of June, it's $33 million. And that's up from the $22 million that people were sort of worrying about. And that came about, number one, from cash from operations, which we see continuing; and number two, it came from a collection of debtors. So we had our debt collections outsourced, and they just blew out to 90 days. And now we brought that back in-house, and we've got that now back under control. But there will be another $6 million or $7 million in the next 2 or 3 months that comes out of just getting back the debtors to normal terms. So when I look at $33 million that we've got in the bank today or at the 30th of June, I take off $8 million because that's what it's going to cost me over the next 6 or 7 months to finish the factory. But of that $8 million, I'm going to give -- on our calculation, just getting our debtors back in order, will give us another $7 million. We've already brought it, by the way, down from 90 very quickly down to 60 days, and we'll get some more out of that as well. So I think we're going to get $6 million or $7 million out of that. And we've got $8 million to pay in dribs and drabs as we finish that factory and the R&D center off. And then we've got cash from operations on top of that. So yes, when people say to me, you're only going to have to raise cash, why do I have to raise cash? I'm now profitable. I'm going to be more profitable. I'm going to bring some cash in. And that $33 million, just to put it in context, up from the $22 million, is after paying off debt. And as I did on Page 1 of that, after paying off debt of $4.5 million and another CapEx to build that plant of $13 million. So we've got to $33 million, but that's after paying our debt off and most of the CapEx off as well. So I'm pretty happy about where that debt figure is at -- well, sorry, where that cash figure is at, not the debt figure. I think the other thing, just digressing, I'll probably come back to some of this. But in the U.S. and elsewhere, it's not just the number of people who are on the road. The other metrics that you'll see and we've mentioned it in what's happening to the number of hospitals we're serving, the number of customers and the number of pieces of BTM we're selling. And that is continuing to go up. So not only are we now in 46 countries, but the number of hospitals is just continues to climb every week. The number of pieces we sell continues to climb every week, partly because we're in other markets, but also partly because, as I've said, surgeons are finding new ways to use this product all the time. And as I said, it just surprises me, to be honest, surprised everybody, what they use for it. I'll give you one what if, which isn't in the report, but I was talking to somebody last night from Belgrade in Serbia, where we had given some humanitarian stock earlier in the year for a 16-year-old boy that was train surfing and held on to the electricity and 95% burns through his body. So we gave them a lot of PolyNovo to get that guy back on his feet, and he's now up and walking. And we got Avita to come in and put some skin on it because we didn't have much skin to go around. But the same surgeon has just done a cleft palate in Serbia. Now everybody on this call could sit around on a whiteboard forever, and we probably wouldn't come up with cleft palate. And this is a notoriously difficult operation to do and to cure in any circumstances. So it's very interesting. Every month, I wake up and there's a new use that we never thought of. Now I'm not saying that's going to be a blockbuster necessarily or even that it will continue to work. But I'm just saying this is just an example of how innovative the surgeons are and how useful they think this product is and how they can sort of extend it across the planet and across indications. I think finally, which got announced earlier was this First in Man study using our PolyNovo under the skin with the Beta Cell guys, the professors from Adelaide, who incidentally, by the way, are here this morning in about half an hour for some meetings on other cell opportunities. But yes, this is really exciting. So I've given it now twice. I think there's 2 more papers they're going to give on it in the next week or 2. And there's a lot of interest in this around the world. And when I talked to Novo Nordisk about these cell people, and they supplied a lot of the cells. So Novo Nordisk, everybody will know, is now the biggest company in Europe. It's bigger than LVMH, and it's got Ozempic, and we all know what that is. So they're intensely interested in not only in cell therapy, but obviously in diabetes. But what they say to me and struck me very hard when they said it was, look, within 2 years, every cell therapy company, and there's people working on delivering cells everywhere around the planet, everybody is going to need a delivery device and not one that involves just injecting into a liver or kidney or somewhere else in the body. So that's -- I think that's fantastic for us because when I look at it from my helicopter, I look at us as having a wound care business, that's our silo that everybody knows about. Well, in and out of the body, I call it wound care, but things like spina bifida, cleft palate, breast hernia, all that sort of stuff. But now I see a clear possibility these guys are pointing me and Novo Nordisk are pointing me towards we could have a product here that will have a completely separate silo. And that silo will be cell delivery and medical delivery. And that's really powerful. And it's worth reading that paper that Toby Coates gave in Copenhagen a couple of weeks ago or our release because at one level, it sounds trivial. Put a bit of our foam under your skin, sew it in, inject it with some cells. Foam disappears in the usual way, but the cells stay and the cells continue to produce insulin and so forth. But that could be any cell, it could be adrenaline cell, it could be thyroid cell. That sounds simple. But when you read the paper with some depth, I mean, the foam itself has some very unique properties with respect to a couple of things. So the first one is just vascularization, that it encourages vascularization in blood, which is why it's so successful when people are using it for diabetic foot ulcers or venous leg ulcers or something like that, where blood has not been enough of it. And so that is number one. Number two is that it's able to be topically immunosuppressed. So you need any immunosuppressant, you can see it. You can do it topically without going into the body. And if in the event that the cells somehow go rogue, we can take them back out again. Whereas if you inject the liver, it's a very complicated procedure and complicated method to try and change it. Thomas, I'm just having a quick look. I just wanted to emphasize again the momentum. And one of the first points I'd make apart from what our cash is now is, is that the cash flow operations in the second half of this year just finished are worth $15.7 million. So again, look at the sales, look at the sales growth, look at what we're doing with extra staff, extra countries and you'll see, therefore, that we've got some confidence that, that's going to keep going, number one. But already, it's starting to throw off quite a bit of cash. So I just got my fingers crossed for the rest of FY '26. I think probably I've covered everything that I think is a highlight, and everybody knows I like to get into my helicopter and look at these things from up high. And all I see is more indications, more doctors, more countries, more products and more applications even outside of that wound care space. And I see a high-margin product that's throwing off cash now. So I'll just thank you guys for following it and everybody else for that matter, but more particularly, the shareholders who have hung around for the ride. Everybody knows we're getting shorted. I don't care. I saw some stuff on social media last night that said David said he hated shorters. I'm like I didn't say that. I said the opposite. I said I love shorters. These guys are my friends because they're going to have to buy back. And we've got a lot coming through here in terms of steady growth and lots of nice surprises in terms of new countries and new applications and so forth. Thomas, that's probably all I need to say about where we are. It's just a quick update.

Well, thanks for that, David. Look, we've got a couple of minutes, if you don't mind. Let's -- might shoot a couple of questions at you. So clearly, you had a really good turnaround in that operating cash flow in the second half compared to the first. Could you just elaborate a bit more on what the differences were that led to that turnaround? And how are you going to be managing that working capital moving forward?

Well, we've started that hit our straps in a lot of these new indications such as MTX, but in a lot of these countries. So India has been slow to take off. We thought we were going to win a lot more tenders than we did more quickly than we did. We're still winning the tenders. It's not like we're losing to anybody else. It's just much more bureaucratic than we thought. And so we've got at least 20 people on the ground in India, but we're now starting to get some really good sales. And that looks like it will be -- it will really go now hard. And we're seeing that, as I said, in U.K., in particular, but everywhere else around the world. So it hasn't been really about managing cash. There have been a few heads that have come out of the business, but it's just a harder focus on the sales side of it and responding to some of the requests we've got. So some of these new countries that we've gone to, it's a mixture because people have come to us and said, "Look, we've heard about it, and we want to distribute for you." It's a mixture of somebody maybe in South America who hasn't got Integra anymore because they left the market. There's a whole lot of things on that. And managing the cash flow, we did have a problem in terms of collecting our debt, but that is no longer a problem and it's even getting better as everybody is back into payment terms. Now I do want to emphasize on that, by the way, Thomas, because I've said it before, we have never had a bad debt. So even though we let them or somebody let them go out to 90 days, we still haven't had any bad debt. But -- and remember, why is that? I'm supplying The Alfred Hospital or RPAH in Sydney or Harvard, these guys are not bad debtors. When we start to go down into small podiatrists and plastic surgeons, okay, I expect that we'll see some bad debts come out of that, and that's one of the costs of doing business. But remember, we haven't got any bad debt. So we've been -- that's the working capital piece that we really needed to manage and get it back into order. And as you'll see, we took a lot of cash back out of that in the last few months. But in the next 6 months, we'll get that. There will be another $7 million come out of that just getting it back in order.

Okay. Thanks for that color. Look, just another one on sales. So clearly, June was a record month, just under $13 million in sales. So that's annualizing thereabouts about $154 million. Is -- can you give us any insight? Is June typically a stronger month? Or do you anticipate kind of continued momentum moving forward over the next 12 months?

I think the answer to the cyclicality of it is really in the graph that's in the pack that take you from our record months of $3 million a month, $4 million a month, $5 million a month. And if you look at those, they're all over the shop. So yes, the first one in '21 was in June, then the next one was in January, then in September, May, November. It's all that, so it's not a month. Now there was a time when we used to say, well, in the summer, that's when it's going to peak a bit in the U.S. because of bushfires in California and so on and so forth. But it's likely what I used to say about the results being lumpy. They still are lumpy. But as you get bigger and bigger and the indicators get more and the countries get more, that lumpiness comes out of it. So what can I say? June is not special. And the previous record before was a March, the previous before that was November '24, November. So it's -- this won't be a lumpy business in due course because we just have so many countries and so many applications and so many customers that all of that lumpiness will go out. It doesn't mean that we won't get lumpiness within certain markets. So if there's a mass disaster in New York and we have sales of $10 million in a month or so, then it could still happen, but it will be swamped by the weight of the rest of the world.

Okay. All right. Just another one, changing tack a bit. So you've obviously got a Director, Dr. Robyn Elliott, currently serving as the interim CEO. Is there any update you're able to provide on this front, how that's all going?