Sparks - AOTI

Advanced Oxygen Therapy Inc (AOTI) has reported its H125 trading update, with revenues for the period expected to be $31m, representing c 18% y-o-y growth. This was driven by a strong Q1 (+26% y-o-y), although this momentum was partially offset by a more challenging Q2, with payor disruptions related to the US government’s healthcare spending decisions. While the Medicaid and commercial segment (46% of H125 revenues) continued to post strong growth (50–55%), the Veterans Administration segment (54% of H125 revenues) was softer due to the impact of the aforementioned US government initiatives.

Based on expected business disruptions in H225 (driven by the US government’s cost containment measures), AOTI has cut its FY25 revenue growth guidance to the mid-teens (27–30% previously) and its adjusted EBITDA margin to low double digits (14–16% previously). However, management expects these headwinds to be temporary, with long-term benefits expected to be derived from costs savings and the durable outcomes delivered by the company’s topical oxygen therapy products in wound management.

AOTI has implemented cost-saving and optimisation measures and has restructured its loan agreement with SWK Funding, providing increased liquidity and flexibility on repayment terms. We also expect longer-term earnings support to come from the addition of two new Medicaid states by AOTI in H125, as well as receiving a provider ID for California (a key target for the company).