This meeting is being recorded.
Welcome to AROA's full year results for FY 2023. From the company today, we have the founder and CEO, Brian Ward, and the company's CFO, James Agnew. Before I hand it over to Brian and James to go through the presentation up on the screen, released to the ASX, I'll just remind you that you can submit questions through the Q&A panel at the bottom of the screen. We'll get to those post the end of the presentation. Brian and James, I'll now hand it over to you to go through the presentation. Thanks.
Thank you, Simon, and welcome to everybody, to our webinar, and thank you for joining. What I'm going to do is give a quick intro to the company for those people that are less familiar with the company, and then talk about our final year results for FY 2023, and then cover our guidance for FY 2024. AROA is a well-established, high-growth soft tissue regeneration company. We have four families of products that we're selling predominantly in the U.S., but all based on our AROA ECM platform. This is a soft tissue regeneration platform. The total addressable market for the products that are selling in the U.S. is in excess of $3 billion. Large potential opportunity in front of the company.
We sell through two channels, our own direct sales team in the U.S., and also through our commercial partner for hernia and breast, TELA Bio. The technology is very well established. We've treated over 6 million patients with this technology. A large body of scientific evidence sits behind us, over 40 peer-reviewed publications. We have multiple approvals in the U.S., and then outside of the U.S., regulatory approvals in over 50 countries and distributors in 15 countries now. We've recently been focusing on developing a new technology platform, our Enivo, platform, and, you know, we think this is a very large opportunity for this technology that complements our existing business. In terms of people, we're 270 people, 200 of those based in New Zealand.
Manufacturing, development, our corporate part of our business is based in Auckland. In the U.S., we have a sales team of 70 based across the United States. What we do is we isolate a very specific layer of tissue from the fourth stomach of sheep and purify that in a way that it can be implanted into people and not cause immunological problems. This material attracts cells and provides a framework for soft tissue regeneration. We've used this technology as a building block for a wide range of soft tissue repair devices, so devices for chronic wounds, so diabetic ulcers and venous ulcers, devices for soft tissue reconstruction, that's our Myriad franchise, and then devices for breast reconstruction and hernia reconstruction, that's our OviTex franchise.
Across all of these products, we've seen very similar results in terms of rapid tissue formation, a high tolerance for this material in contaminated fields, no negative inflammatory response to this material, and the ability to use this technology to reduce the complexity of a number of surgeries. That runs across all of our products. Each product is purposely designed for each of the different applications that we use the products for. In terms of the opportunity in front of us, we've recently updated our TAM, we now see, you know, a larger opportunity for our Myriad franchise, the TAM for that has increased recently. We also, you know, we have AroaC ells, the Symphony, Endoform, and Myriad products. That's a TAM of $1.8 billion.
The opportunity for the OviTex products is in excess of $1.3 billion in the U.S. Just to sort of cover off the TAMs of the various products. You can see that, with the addition of Symphony in FY 2023, that's taken the potential TAM for our existing products over $3 billion. The Myriad market, we now believe to be in excess of $700 million. And, you know, the OviTex products, obviously, you know, in excess of $1 billion. You know, altogether, it's a TAM in excess of $3 billion. We have a tiny proportion of this market at the moment, so we think there's a very large growth opportunity in front of the company, over the short and medium term.
Our Enivo product is a new product platform that we've been developing. This product's for the management of dead space. This is where a cavity is formed during surgery at a surgical site. This product is comprised of an implant that's put into the surgical site, which is then exited to a negative pressure pump system outside the body. When the vacuum is applied to the system, it draws the tissue together and holds the tissue in place to help it heal and prevent that cavity from being there. We think there's a very large opportunity for this product in the procedures that we're performing at the moment with our products, but also in some other procedures as well.
That product, there's an opportunity for it as a standalone product, there's an opportunity for that product in combination with our existing products, and we think this is a potential accelerator for the business as well, in terms of engagement with surgeons. We think this is a really important franchise for the business in the future. In terms of key results, we announced some of these results a month or so ago. From a revenue perspective, our product revenue was $60.5 million against guidance of 60-62. Total revenue was $63.4 million, and that includes some licensing fees and some project fees.
Gross margin came in at 84%, which is in line with guidance. You know, that's up from 77% last year, so we've made some very good gains there, both from productivity improvements, but also a more favorable product mix due to high margin products like Myriad selling. From a normalized EBITDA perspective, our guidance was break even, and we've come in at positive $1.5 billion. You know, we're certainly turning the corner and starting to demonstrate that we can, you know, the business can be profitable. We ended the year with a cash balance of $45 million.
From a product sales perspective, you know, our special product sales has grown significantly this year on the AROA side. We've seen a 55% increase in sales year on year, and increases, you know, across the board. Endoform sales are up 12%, predominantly driven by our international business. Myriad sales are up 268% on last year, so really pleased with how Myriad's performed. TELA Bio sales up 41% year on year. You know, we're seeing strong growth across the whole business, which we're, you know, we're really thrilled with. You know, if you look at the growth rate for, you know, all of the AROA products, that's the TELA products and the AROA products that we're selling directly, you know, we're seeing strong year-on-year growth.
You know, the aggregate is continuing to track very positively, and, you know, we're very optimistic about the growth over the medium term. From a sales perspective, you know, we have been investing in our commercial infrastructure in the U.S. and adding people in the U.S. You can see we've added Myriad salespeople over the last 12 months. About 28% increase in our sales team. You know, consequently, through adding people, but also through the maturity of our sales team, we've seen a significant uptick in the number of accounts where we now have active sales. That's up 131% year-on-year. We now have over 160 active Myriad accounts.
From a manufacturing perspective, you know, we've made some great gains from a margin perspective, so an 8% improvement in gross margin, so that's, you know, 77% up to 84%. We've also, you know, had a significant investment in our manufacturing capacity to make sure that we're, you know, prepared for future demand. We've now had, you know, almost a 300% increase in the potential for us to, you know, meet growing demand. In terms of, you know, the facility that we now have in place, we're well placed to meet the demand over the next two to three years.
We've had an uplift in CapEx in terms of building out our infrastructure, but relatively modest investment, you know, given the increase in capacity that we've been able to bring online. In terms of use of funds, you know, we're, our cash balance is around about $45 million. The two areas that we've really invested in over the last 12 months have been our sales and marketing expenses, so that's really, you know, focused on expanding the team. Our R&D spend has increased as well. The R&D spend, you know, a lot of this has been going into Enivo. You know, we sort of see this beginning to top out.
A lot of the upfront work has been done on Enivo, and that will transition more to, you know, work that's about maintaining the product. There has been an uplift in Enivo that accounts for a large proportion of our of our existing R&D. Outside of that, we've capitalized a small amount of R&D. That capitalization is for the line extensions or process improvements, where we have a high certainty that development expenditure will lead to future economic return. We also have a relatively modest investment in line extensions for our existing AROA ECM technology. You can see on the gray box here in the chart on the right.
You know, we've got a relatively modest investment in continuing to, you know, roll out new products based on AROA ECM. I just want to talk a little bit about, you know, how we sort of think about Enivo and, you know, how that fits into, you know, our future competitive advantage. I think the first sort of point is that we think that this is very complementary to our existing business and can add, you know, an opportunity in excess of a $1 billion. Very large opportunity in front of us. We've chosen to make this investment because we think it's a great opportunity on its own, but also it complements our existing business and really differentiates us substantially from existing competitors.
If you look at the chart, the gray bars show our normalized EBITDA between FY 2020 and FY 2023. You can see, you know, that's obviously gone negative in FY 2021, FY 2022, and we've now returned to being positive. The reason that that's gone negative is that we've chosen to invest in the Enivo project. You can see that as slightly pinkish bars, you know, quite a significant investment between FY 2020 and FY 2023 in the Enivo project. I think the important point here is that, you know, that's an investment that we've chosen to make because we think it's going to lead to a very strong competitive position over the medium term.
You know, if we were to back out that expenditure, if you look at the orange bars, AROA would already be, you know, extremely profitable at this stage. We've chosen to sacrifice short-term profitability for longer-term competitive advantage and profit. We think there's an enormous opportunity there, and we think that's a very good investment for us in the future. You know, if you look at the gray bars, you know, despite that significant investment in Enivo, we are now becoming profitable. I'll talk about guidance shortly. We'll be modestly profitable this coming year, that should transition to being highly profitable in the future. I think the other point to make here is that the Enivo product also leverages our existing sales force.
You know, we believe that by having another product within their portfolio, it has the potential to significantly improve sales productivity as well. Other sort of highlights I'd like to point out in terms of the last year include, you know, the Myriad sales. Myriad has been the major driver of AROA Direct's sales force performance. They have had a great result with Myriad Morcells. That's grown very strongly and now accounts for over 60% of our Myriad sales . We've also recently launched our Myriad Morcells Fine version in May, and we think this has the potential to expand the opportunity for the Myriad franchise.
We've found that the Myriad Morcells has really carved out a unique niche within this market and has been used as a conformable graft, a little bit differently to how matrix products and powder products are currently being used. Our the thought with developing Myriad Morcells Fine was really to compete more directly against the existing fine products that exist on the market at the moment. You know, we see Myriad Morcells as being an incremental opportunity for us, not certainly taking away from the unique position that Myriad Morcells has carved out. Symphony is now fully launched with our sales team, and you know, we're launching that into what we see as a changing outpatient reimbursement landscape.
There's a whole mix of factors that are changing in that environment, where potential reimbursement changes, potential changes in the regulatory framework and the use of products, and particularly around the amniotic products, changes in how payments may be made, and just a sort of a landscape where we believe we can get going with Symphony and, you know, a, you know, a large opportunity will open up for us over the next 2-3 years. We've had, you know, excellent success with GPOs over the last couple of years, and that's really been capped off by the recent Premier contract. We now have contracts with Premier, Vizient, HealthTrust, and Ascension.
This means that, you know, if you look at all of the hospitals across the U.S., you know, we have coverage with more than 95% of those hospitals now. GPO access for us into hospitals is now open, and that's not really a constraint for us in terms of gaining access to selling to hospitals. Our Myriad registry has gone very well, we now have 100% of patients recruited into this. That's tracking ahead of time. That's been up for a year now. We have four sites in place, and we're targeting to get 10 sites.
I think, you know, we're probably, you know, taking a year ahead of where we thought we'd be with that registry, and we'll see some studies beginning to come out of that registry over the next 12 months. For Enivo, you know, we've been delighted to receive a 510(k) clearance for the pump and the catheter. These are two, you know, complex components of the system that we've now had cleared, so we've de-risked this product significantly. There's a third component of the system, which is the ECM sleeve. We're currently in discussions with the FDA regarding the regulatory pathway for that. You know, we see some options for that, you know, potentially a nearer-term option or a slightly longer option.
I think we really won't be really clear about that with the feedback from the FDA, until probably the end of the second quarter of this year. TELA Bio continues to perform very well. You know, we've seen their calendar year 2022 result of $41 million, you know, be up 41% on the previous year. We've been very encouraged by their guidance for the coming year, which is between $60 million-$65 million, which is up, you know, 45%-57% growth. Strong growth from TELA Bio. Also really good to see that they've completed a capital raising, which sets them up very well to continue to expand the sales team and, you know, trade through to potential profitability.
We feel like the TELA Bio side of the business, you know, the strong revenue growth, the financing puts them in a really strong position to continue to grow. Just going to guidance now. You know, we, our product revenue guidance for FY 2024 is $72 million-$75 million. You know, on a constant currency basis, this represents 25%-30%. You know, we think total revenue will be $73 million-$76 million. This is guidance that we feel comfortable, we're very comfortable putting out at this stage in the year. Obviously, you know, as things progress through the year, you know, we'll keep an eye on this and provide updates as necessary. Gross margin, we see that improving. You know, we are facing some foreign currency.
Well, we're, we're allowing for some foreign currency headwinds in our budgeting. Yeah, we'll see productivity improvements. We'll see improvements in product mix, but we are basing our budget on a stronger currency. You know, we think 85% is a very doable goal at this stage of the year. We'll finish the year positive again from an EBITDA perspective. You know, similar sort of result to this year. We think, you know, the following year, we transition to being highly profitable. I just wanna sort of step through how we think about revenue growth and profitability. If we look at the top line here, you know, product revenue.
FY 2022, we had NZD 43.8. We've gone to NZD 60.4 for FY 2023. That represents a 38% increase in revenue. If we're on a constant currency of NZD 0.62, then we'd go to NZD 76 million-NZD 79 million in the upcoming year. That would represent a year-on-year growth of 25%-30%. If you look at product gross margin, we've gone from 79% to 84%, a 5% increase. We're budgeting 85%-86%, that's a 1%-2% increase. If you look at the normalized EBITDA, that's backing out our extraordinary sort of items, licensing fees, project fees.
We have a normalized EBITDA from NZD 1.1, NZD 1.1 again, in FY 2023. If it was, if we're using a constant currency, that'll be going to NZD 3 million-NZD 4 million. We are budgeting our guidance on NZD 0.65. What that means is that product revenue is NZD 72 million-NZD 75 million. Gross margin is 85%, and normalized EBITDA is at NZD 1 million-NZD 2 million. If we sort of step out beyond next year and, you know, think about our sort of assumptions for growth, you know, we continue to think that product revenue will grow strongly. You know, we sort of, you know, think about, you know, 25% year-on-year growth.
We think margins have the potential to increase, and so we can see margins moving into the high 80s. You know, we see sales force efficiency improving, and so, you know, our percentage of expenses of sales, you know, relative revenue decreasing from 75%- 50%. You know, over time, we see, you know, our normalized EBITDA increasing beyond 20%. If we sort of think about our sort of financial model as a whole, you know, we see a transition coming reasonably quickly to being highly profitable, and, you know, delivering, you know, strong, positive EBITDA results. If you look sort of at FY 2024, you know, what are the catalysts and milestones?
I think really it's, continuing to drive, you know, sales both on the AROA side and on the TELA Bio side. You know, I think the changes within the reimbursement environment, some of the changes that are happening in some of our competitors, do offer opportunities for, you know, considerable growth. Some of those changes are not particularly factored into the guidance at this stage. Symphony product launch, you know, that certainly, there's potential for that to step up, but, you know, we'll see how the year pans out. Enivo, you know, we are, we have several sort of parallel, options running in terms of the clearance of Enivo, and I think we'll.
We're going to be advancing those over the next, two quarters. I think by the end of that time, we'll have a much clearer view on whether the Enivo clearance will come in the short term or maybe more in the medium term. I think that's, at this stage, that's still to be determined. Simon, I'm gonna pause there and hand it back over to you. Thank you.
Perfect. Thanks, Brian. First question is from Shane Storey at Wilsons. Good morning. On the guidance, can you give us an estimate of how you expect over the PRF sales to come up to phase between the first and second halves? Would 40/60 be a reasonable prediction? Thanks.
Yeah, I mean, I think for us, yeah, it's certainly going to be stronger in the second half. I think 40/60 is probably not a bad place to start. Yeah. Do you want to add anything to that, James? Yeah, that's about right. Yeah. Yeah.
Thanks, guys. Next question from Elyse Shapiro, Canaccord. Can you talk to us about anticipated sales force growth in FY 2024?
Yeah. I think there's a couple of things. I mean, I think we are going to add some more salespeople in the coming year. This, you know, is probably in the five to 10 range. I think be a little bit cautious in the first half of the year and then, you know, see how things look at the half year. You know, one of the things we're really focused on at the moment is improving sales force productivity. The way that we think about that, and we are seeing this happen, is, you know, putting new people into territories and seeing them perform earlier. You know, once we feel like we can reduce that time to break even, then, you know, we will scale things up considerably.
We do want to be sure that we are getting that productivity coming quicker. We've got confidence around our ability to get a faster return on our investment there. You know, we're seeing some good gains there, and I think we really sort of build on that a little bit over the next six months.
Great. Thanks. Any comment on the recent Integra product recall, and what opportunities potentially present for AROA? When would you expect this to be able to be demonstrated, any tangible benefit this may deliver, assuming you haven't seen anything yet?
Yeah, look, I mean, this has been a big thing in the last week or so. You know, Integra has recalled two products that are recent competitors with us in both hernia and breast, but also in the complex wound market. You know, we're seeing inbound inquiries from customers or potential customers at the moment. It could have quite a, you know, a material effect on the next 12 months. I think it's very early for us to be able to call that.
You know, I think there's, you know, that, I think there's no doubt that that adoption would be pretty accelerated, as that comes through, because, you know, the products, different products are being recalled now, and, you know, it's not clear that there's a clear fix for those products to be back on the market quickly. I think that's certainly a factor at the moment. It's something that's not factored into guidance at the moment.
Right. Thanks, Brian.
Talking to an Enivo addressable market, are there any existing or potential players in the field? For Enivo product, what's the estimated gross margin, and will AROA make the product in-house or look for manufacturers?
Yeah. You know, I think Enivo is a very unique product, and there's really. You know, we've looked at a completely new class of products. There's not an effective product that manages that space on the market at the moment. You know, we think there's a really strong opportunity in for that product and with our existing products. You know, in terms of margin, you know, I think it will be like our other products. It's probably in the early stages, won't be highly profitable. We can see it transitioning to being a highly profitable product over time. You know, getting to be consistent with, you know, the margins that we make out in other parts of our business, you know, probably in the 70s%.
You know, that's, you know, that will take a little bit of time to get there. From a manufacturing perspective, we are set up to do limited assembly of this product. Now, you know, some of the components that are required for this product will not be manufactured by AROA. We will buy them in as components and probably do final assembly. That just simplifies things from a quality and regulatory perspective. You know, we are setting ourselves up at the moment to be able to produce Enivo in, you know, limited commercial quantities, you know, within the next 12 months.
Great. Thanks, Brian. Question from Sebastian Clemens at Jarden. Can you please unpack your guidance assumptions around TELA Bio sales over the year? Noting your comments on inventory, what percent of guidance does TELA Bio represent, and what sort of second-half skew are you baking into expectations?
Just on that point, yes, TELA Bio, at the end of their Q1, are sitting on relatively high stock levels. We expect, you know, probably the first half of the year to be relatively flat for TELA, but then picking up again in line with their growth. I think it's important to note that TELA Bio's underlying growth is still in excess of 45% to, you know, 55%. I think it'll just, we've see it correct itself probably in the second half. I think if you look at all the overall mix, what you'll find is we had last year, our mix was sort of more TELA Bio. Last year, we had TELA Bio account for probably 60% of our revenue. This year, we'll see that trending towards 50%.
Right. Thanks, James. Just a final question from Sebastian: How much does Myriad and Symphony account for in FY 2024 guidance?
Yeah, look, it's probably close to sort of, you know, taking account, probably we work on those numbers. 50% would be sort of the guidance, the AROA Direct, and then, you know, accounts for the Endoform, where, again, you know, you're looking at modest growth.
Q&A, guys. I'll hand it back to you for closing remarks.
Great. Thanks, Simon. You know, we're, you know, we think we've delivered a really strong year. Really, really exciting to see how Myriad's performed, you know, we've got, you know, strong, you know, a strong view about Myriad over the next year. TELA Bio, as James said, you know, TELA Bio's guidance remains really strong. There will be, the first part of the year is a little bit flattish, you know, we see that coming right in the second half of the year. Some of that's just timing. You know, I think the key thing for us really is looking at the headline growth for both sides of the business, which remains strong. Yeah, we're excited with where we are. We're excited about the next 12 months. Thank you for joining.
All right. Thanks, Brian. Thanks, James. Thanks, all, for attending.