MIMEDX GROUP INC

Previous wording

•Net sales of $84.7 million, reflecting 18.2% growth over the prior year period.

Current wording

•Net sales of $87.2 million, reflecting 7.3% growth over the prior year period.

Previous wording

•GAAP net income from continuing operations and net margin for the first quarter of 2024 of $9.1 million and 10.7%, respectively.

Current wording

•GAAP net income from continuing operations and net income margin for the second quarter of 2024 of $17.6 million and 20.2%, respectively.

Previous wording

MIMEDX is a pioneer and leader in placental biologics focused on delivering innovative solutions to patients and the healthcare professionals who treat them. With more than a decade of experience helping clinicians manage acute and chronic wounds, MIMEDX has been dedicated to providing a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. All of our products sold in the United States are regulated by the U.S. Food & Drug Administration (“FDA”). We apply Current Good Tissue Practices (“CGTP”) and other applicable quality standards in addition to terminal sterilization to produce our allografts.

Current wording

MIMEDX is a pioneer and leader focused on helping humans heal. With more than a decade of experience helping clinicians manage acute and chronic wounds, MIMEDX has been dedicated to providing a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. All of our products sold in the United States are regulated by the U.S. Food & Drug Administration (“FDA”). We apply Current Good Tissue Practices (“CGTP”) and other applicable quality standards in addition to terminal sterilization to produce our allografts.

Previous wording

This discussion, which presents our results for the three months ended March 31, 2024 and 2023, should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q and the financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Current wording

This discussion, which presents our results for the three and six months ended June 30, 2024 and 2023, should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q and the financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

We recorded net sales for the three months ended March 31, 2024 of $84.7 million, a $13.0 million, or 18.2%, increase compared to the three months ended March 31, 2023, in which we recognized net sales of $71.7 million.

Current wording

We recorded net sales for the three months ended June 30, 2024 of $87.2 million, a $6.0 million, or 7.3%, increase compared to the three months ended June 30, 2023, in which we recognized net sales of $81.3 million.

Previous wording

Cost of sales for the three months ended March 31, 2024 and 2023 was $13.0 million and $12.4 million, respectively, an increase of $0.6 million, or 4.6%, year-over-year. Gross profit margin for the three months ended March 31, 2024 was 84.7% compared to 82.7% for the three months ended March 31, 2023. The year-over-year improvement in gross margin was driven by favorable product mix and our continued execution on yield improvement projects. Increases in cost of sales were driven by increases in sales volume noted above.

Current wording

Cost of sales for the three months ended June 30, 2024 and 2023 was $14.9 million and $13.6 million, respectively, an increase of $1.3 million, or 9.4%, year-over-year. Gross profit margin for the three months ended June 30, 2024 was 83.0% compared to 83.3% for the three months ended June 30, 2023. Increases in cost of sales were driven by increases in sales volume as noted above. The year-over-year reduction in gross margin was driven by the amortization of distribution rights stemming from the TELA Asset Purchase Agreement entered into during the first quarter of 2024, as described below. This was partially offset by favorable product mix and our continued execution on yield and scrap improvement projects.

Previous wording

Selling, general and administrative (“SG&A”) expense for the three months ended March 31, 2024 was $55.1 million, compared to $52.3 million for the three months ended March 31, 2023, an increase of $2.9 million, or 5.5%, year-over-year. The increase in SG&A was driven by year-over-year increases in commissions due to greater sales volume, as well as a larger proportion of sales through sales agents during the three months ended March 31, 2024.

Current wording

Selling, general and administrative (“SG&A”) expense for the three months ended June 30, 2024 was $55.4 million, compared to $52.0 million for the three months ended June 30, 2023, an increase of $3.4 million, or 6.6%, year-over-year. The increase in SG&A expense was driven by year-over-year increases in compensation related to higher salary and benefit costs from merit raises and promotions, as well as commissions driven by increases in sales volumes and proportionally higher sales through sales agents. Incremental spend from legal and regulatory disputes in the current period also contributed to the increase.

Previous wording

Our research and development (“R&D”) expense decreased $0.6 million, or 18.5%, to $2.8 million for the three months ended March 31, 2024, compared to $3.5 million for the three months ended March 31, 2023. The decrease was driven primarily by lower headcount and the timing of R&D activities compared to the prior year.

Current wording

Our research and development (“R&D”) expense decreased $0.7 million, or 18.0%, to $3.0 million for the three months ended June 30, 2024, compared to $3.7 million for the three months ended June 30, 2023. The decrease was driven primarily by lower headcount and the timing of R&D activities compared to the prior year.

Previous wording

The effective tax rates for the Company were 20.6% and (2.7)% for the three months ended March 31, 2024 and March 31, 2023, respectively. The effective tax rate for the three months ended March 31, 2024 was favorably impacted by vestings of restricted stock units. Net operating losses generated for the three months ended March 31, 2023 were offset by a valuation allowance.

Current wording

The effective tax rates for the Company were 24.1% and (0.8)% for the three months ended June 30, 2024 and June 30, 2023, respectively.

Previous wording

Net sales of our Surgical products totaled $27.7 million, reflecting growth of $1.2 million, or 4.5% compared to the three months ended March 31, 2023. The increase was primarily driven by, growing contributions from AMNIOEFFECT® and, to a lesser degree, AXIOFILL®. In addition, Surgical sales for the three months ended March 31, 2023 reflects approximately $1 million of sales of our dental product which we have since discontinued.

Current wording

Net sales of our Surgical products totaled $57.3 million, reflecting growth of $2.9 million, or 5.4%, compared to the six months ended June 30, 2023. The increase was primarily driven by growing contributions from AMNIOEFFECT® and AMNIOFIX®. In addition, Surgical sales for the six months ended June 30, 2023 reflects approximately $2 million of sales of our dental product which we have since discontinued.

Previous wording

Interest expense, net was $1.7 million for the three months ended March 31, 2024 compared to $1.6 million for the three months ended March 31, 2023, an increase of $0.1 million, or 8.8%, year-over-year. The increase was the result of the loss on extinguishment of debt due to repaying and terminating our Hayfin Loan Agreement during the first quarter of 2024 ($1.4 million), offset by decreases in outstanding debt and lower interest rates under the Citizens Credit Facilities as well as improvement in our treasury management.

Current wording

Interest expense, net was $1.7 million for the six months ended June 30, 2024 compared to $3.2 million for the six months ended June 30, 2023. The decrease was the result of a decrease in outstanding debt, lower interest rates under the Citizens Credit Facilities, and improvements in our treasury management. The decrease was partially offset by a loss on extinguishment of debt due to repaying and terminating our Hayfin Term Loan during the first quarter of 2024 ($1.4 million).

Previous wording

Net cash provided by operating activities from continuing operations during the three months ended March 31, 2024 was $6.8 million, compared to cash provided by operating activities from continuing operations of $0.6 million for the three months ended March 31, 2023. The change was primarily the result of year-over-year increases in net sales, which drove increases in collections from customers. These increases were partially offset by year-over-year increases in operating expenses.

Current wording

Net cash provided by operating activities from continuing operations during the six months ended June 30, 2024 was $27.8 million, compared to cash provided by operating activities from continuing operations of $3.7 million for the six months ended June 30, 2023. The change was primarily the result of year-over-year increases in net sales, which drove increases in collections from customers.

Previous wording

Net cash used for investing activities during the three months ended March 31, 2024 was $6.0 million, compared to $0.7 million for the three months ended March 31, 2023. This increase was largely the result of our investment to expand our product portfolio through the TELA and Regenity agreements as described below in “Liquidity and Capital Resources”.

Current wording

Net cash used for investing activities during the six months ended June 30, 2024 was $6.9 million, compared to $1.0 million for the six months ended June 30, 2023. This increase was largely the result of our investment to expand our product portfolio through the TELA and Regenity agreements as described below in “Liquidity and Capital Resources”.

Previous wording

Net cash used for financing activities during the three months ended March 31, 2024 was $33.5 million. Cash used in financing activities was immaterial during the three months ended March 31, 2023. The increase during the three months ended March 31, 2024 was due to the Company repaying the initial $30.0 million drawing under the Revolving Credit Facility, as described below in “Liquidity and Capital Resources,” deferred financing costs incurred under the Citizens Credit Agreement, and stock repurchases for tax witholdings upon vesting of employee restricted share units.

Current wording

Net cash used for financing activities during the six months ended June 30, 2024 was $33.8 million. Cash used in financing activities was immaterial during the six months ended June 30, 2023. The increase during the six months ended June 30, 2024 was due to the repayment of the initial $30.0 million drawing under the Revolving Credit Facility, as described below in “Liquidity and Capital Resources,” deferred financing costs and other payments made as part of the Debt Refinancing Transactions, as defined below, and stock repurchases for tax witholdings upon vesting of employee stock awards.

Previous wording

As of March 31, 2024, we had $48.5 million of cash and cash equivalents, total current assets of $138.9 million and total current liabilities of $42.2 million, reflecting a current ratio of 3.3, and we had no borrowings outstanding and $75 million of availability under our Revolving Credit Facility (as defined below).

Current wording

As of June 30, 2024, we had $69.0 million of cash and cash equivalents, total current assets of $154.0 million and total current liabilities of $40.0 million, reflecting a current ratio of 3.8. We had no borrowings outstanding and $75 million of availability under our Revolving Credit Facility (as defined below).

Previous wording

The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in full on January 19, 2029 (the “Maturity Date”), and are guaranteed by certain of the our subsidiaries, and secured by substantially all of the assets of the Company and the guarantors pursuant to a customary security agreement. Subject to the terms of the Citizens Credit Agreement, we have the option to obtain one or more incremental term loan facilities and/or increase the commitments under the Revolving Credit Facility in an aggregate principal amount equal to the greater of (i) $50.0 million and (ii) 1.00 times our Consolidated EBITDA as defined therein, each subject to the existing or any new lenders’ election to extend additional term loans or revolving commitments.

Current wording

The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in full on January 19, 2029 (the “Maturity Date”), and are guaranteed by certain of our subsidiaries, and secured by substantially all of the assets of the Company and the guarantors pursuant to a customary security agreement. Subject to the terms of the Citizens Credit Agreement, we have the option to obtain one or more incremental term loan facilities and/or increase the commitments under the Revolving Credit Facility in an aggregate principal amount equal to the greater of (i) $50.0 million and (ii) 1.00 times our Consolidated EBITDA as defined therein, each subject to the existing or any new lenders’ election to extend additional term loans or revolving commitments.

Previous wording

We are required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility, with the remainder due on the Maturity Date. We must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. We may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. We must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.

Current wording

We are required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility at inception, with the remainder due on the Maturity Date. We must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. We may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. We must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.

Previous wording

Except as described below, there were no significant changes to our contractual obligations during the three months ended March 31, 2024 from those disclosed in the section Item 7, “Management’s Discussion and Analysis of Financial Condition and Results from Operations”, in our 2023 Form 10-K.

Current wording

Except as described below, there were no significant changes to our contractual obligations during the six months ended June 30, 2024 from those disclosed in the section Item 7, “Management’s Discussion and Analysis of Financial Condition and Results from Operations”, in our 2023 Form 10-K.

Previous wording

On March 15, 2024, the Company entered into an Asset Purchase Agreement (the “TELA APA”) with TELA Bio, Inc. (“TELA”) and a manufacturing and supply agreement (the “Supply Agreement”) with Regenity Biosciences, Inc. (“Regenity”), adding to the Company’s product portfolio a 510(k)-cleared collagen particulate xenograft product (the “Xenograft Product”) indicated for the management of moderately to heavily exudating wounds and to control minor bleeding. Under the terms of the TELA APA, the Company made an initial $5.0 million payment to TELA and will be required to make additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million based on net sales of the Xenograft Product over the next two years.

Current wording

On March 15, 2024, the Company entered into an Asset Purchase Agreement (the “TELA APA”) with TELA Bio, Inc. (“TELA”) and a manufacturing and supply agreement (the “Supply Agreement”) with Regenity Biosciences, Inc. (“Regenity”), adding to the Company’s product portfolio a 510(k)-cleared collagen particulate xenograft product now marketed as HELIOGEN (“HELIOGEN”) indicated for the management of moderately to heavily exudating wounds and to control minor bleeding. Under the terms of the TELA APA, the Company made an initial $5.0 million payment to TELA and will be required to make additional future payments aggregating between a minimum of $3.0 million and a maximum of $7.0 million, based on net sales of HELIOGEN over the next two years from June 2024.

Previous wording

The Supply Agreement maintains MIMEDX’s exclusive right to sell and market the Xenograft Product in the United States and requires MIMEDX to purchase a minimum amount of the Xenograft Product from Regenity annually through December 31, 2033. Should MIMEDX fail to meet a purchasing minimum in any one period, it has the option (among others) to amend its distribution rights under the Supply Agreement to be non-exclusive.

Current wording

The Supply Agreement maintains MIMEDX’s exclusive right to sell and market HELIOGEN in the United States and requires MIMEDX to purchase a minimum amount of HELIOGEN from Regenity annually through December 31, 2033. Should MIMEDX fail to meet a purchasing minimum in any one period, it has the option (among others) to amend its distribution rights under the Supply Agreement to be non-exclusive.